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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7073
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My wife and I have been saving for retirement and in 2012

Customer Question

My wife and I have been saving for retirement and in 2012 moved 401 K money in an IRA that invested in real estate. The owner of the company took our investment and purchase houses but then borrowed money from a bank to invest in his personal investment. The SEC is now in the trial phase with the individual for fraud as he took all of the investors money and there is nothing left. Based on this fraud, can we deduct our cash loss from our taxes? If add'l information is needed before reponding, I'll be happy to provide. Thanks
Submitted: 6 months ago.
Category: Tax
Expert:  Stephen G. replied 6 months ago.

Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

Expert:  Stephen G. replied 6 months ago.

Unfortunately, if all your contributions to your 401k before the balance was transferred to an IRA, then you have no "tax basis" in the 401k and therefore in the rollover IRA.

The only way the you would have a deductible tax loss on the loss that you did realize if if you had made non-deductible contributions to your 401k. Had that been the case, then if you close out your IRA and were to receive less than your non-deductible contributions (your tax basis in the IRA), then you would have a tax loss that could be taken as a miscellaneous itemized deduction subject to the 2% floor.

So, in the situation you describe, presuming you have not made any non-deductible contributions to the 401k (or the IRA), the loss that you are experiencing on your IRA is not deductible for tax purposes as you have no tax basis in the IRA.

Thanks very much for you question and for using JustAnswer.com.

I wish I had a more favorable answer for you, but the rules are very specific in this area.

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Steve G.