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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1408
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Im a federal employee invested in the S fund of the TSP. A

Customer Question

I'm a federal employee invested in the S fund of the TSP. A couple years ago I took out a loan that at the time was essentially a distribution that was at an approximate loss of $16,000. I have been paying it off for three years and am retiring in March at which time anything not paid will be determined to be a distribution at that time. Next year when I do my taxes for 2012, how do I show the capitol loss and any taxable gain from what will then be a distribution of around $8,000.
Submitted: 4 years ago.
Category: Tax
Expert:  Jax Tax replied 4 years ago.

Jax Tax : All contributions to a TSP are pre tax so you cannot take a loss. The entire about of any distribution is taxable because tax was not paid on any of the money upon contribution(pre tax) or growth(tax defferred).
Jax Tax : You may want to consider some options like taking the distribution this year to spear it over several years so not to increase your tax bracket. You need to consider everything such as penalties and tax in both years to determine the net tax effect.
Jax Tax : But, to answer your question, a TSP does not realize a loss as all fund are contributed and grow tax free. All distributions are taxable events and yes, a loan conversion will be posted as a distribution.
JACUSTOMER-isyri9at- :

1. No not all contributions are pre tax. Every penny I've paid back on the loan is taxed first, including the interest I'm paying myself. I'll be getting a monthly distribution after I retire. There are no penalties since I'm 64 years old. The distribution as a result of the unpaid balance of the loan will be automatically determined. How can it be spread out over years? I gave up $20,000 in shares which were at a loss from what I paid for them. I have a spreadsheet that shows every transaction I've had over the 8 years employment.

Jax Tax : I understand the money paid on the loan was post tax but that does not change the fact that no loss can be taken. The original contribution and loan was not tax. The repayment was simply replacing the pre tax funds. There is no loss. I hate to give bad news, but it is accurate information.
Jax Tax : Don't kill the messenger!
Customer: replied 4 years ago.
Relist: Inaccurate answer.
Regardless of the pretax status of contributions to the TSP, If I paid $24 per share, and the share price when I took out the $20,000 loan was $12 per share, how is that not a loss?