You cannot deduct losses in a traditional IRA on your federal tax return. The IRS classifies an IRA loss as a miscellaneous itemized deduction, and that category of deduction has been eliminated for every tax year after 2017. If your account is worth less than what you put in, the tax code gives you no way to write off the difference.
What the Law Says Now
The Tax Cuts and Jobs Act of 2017 suspended all miscellaneous itemized deductions beginning in 2018. That suspension was originally set to expire after 2025, but the One Big Beautiful Bill Act, signed into law in 2025, made the elimination permanent. The current text of 26 U.S.C. § 67(h) allows no miscellaneous itemized deduction for any tax year beginning after December 31, 2017, with no sunset date.1Office of the Law Revision Counsel. 26 USC 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
IRS Publication 529 states the result plainly: a loss on your traditional IRA investment “is a miscellaneous itemized deduction and can no longer be deducted.” The same prohibition covers Roth IRA losses, which Publication 529 groups together with traditional IRA losses under one rule.2Internal Revenue Service. Publication 529 – Miscellaneous Deductions Account type does not change the answer.
Older guides and tax professionals occasionally still describe the pre-2018 procedure for claiming an IRA loss, which required liquidating every traditional IRA you owned, having documented non-deductible contributions on Form 8606, itemizing on Schedule A, and clearing a 2 percent AGI floor. Those rules no longer have any application. The deduction itself is gone.
Don’t Report Paper Losses While the Account Is Open
The IRS has confirmed that gains and losses inside an open IRA do not go on your tax return.3Internal Revenue Service. Retirement Plans FAQs Regarding IRAs An IRA is tax-deferred: what happens to the investments while they sit inside the account is not a tax event. The tax treatment turns entirely on what comes out and when. A drop in value is simply not something the return captures.
Why Your IRA Basis Still Matters
Even without a loss deduction, there is one piece of IRA recordkeeping worth your attention: basis. Basis is the total of non-deductible contributions you made with after-tax dollars. When you eventually withdraw from a traditional IRA that contains both pre-tax and after-tax money, the portion attributable to basis comes back to you tax-free. Only the pre-tax contributions and earnings are taxable.
Fail to track basis and the IRS treats the entire distribution as taxable income. You end up paying tax twice on the same dollars. That mistake costs real money, far more than the vanished loss deduction ever saved anyone.
You track basis on IRS Form 8606, filed with your return in any year you make a non-deductible contribution or take a distribution from a traditional IRA that contains basis.4Internal Revenue Service. Instructions for Form 8606 – Nondeductible IRAs The form carries your cumulative basis forward year to year. If you made non-deductible contributions in the past and never filed Form 8606, you can file it retroactively to establish the record.
One rule to know: for distribution calculations the IRS treats all your traditional IRAs as a single pool, including SEP and SIMPLE accounts. You cannot isolate the account that lost value and treat it separately. Roth IRAs are kept out of that pool.4Internal Revenue Service. Instructions for Form 8606 – Nondeductible IRAs
If You Close the Account Anyway
Some people consider liquidating a down IRA just to be done with it. Understand what that triggers. A distribution taken before age 59½ generally carries a 10 percent additional tax on the taxable portion. The taxable portion is everything except your basis.
So if your account has dropped to $32,000 and your basis is $40,000, the full $32,000 is a return of basis and no penalty applies. If your basis is only $10,000, then $22,000 is taxable and the 10 percent penalty hits that $22,000. You still file Form 8606 to compute the non-taxable share, even though no loss deduction follows.4Internal Revenue Service. Instructions for Form 8606 – Nondeductible IRAs Liquidating purely to “claim the loss” accomplishes nothing on the tax side and may cost you a penalty on top.
Better Moves When Your IRA Is Down
Since there is no deduction waiting for you at the bottom of the account, the useful strategies all involve staying inside the tax-deferred wrapper or looking elsewhere for a loss.
- Rebalance inside the account. You can sell the losing investments and buy different ones without any tax consequence. Transactions inside an IRA are not taxable events, so you can reposition freely.
- Consider a Roth conversion while values are low. Converting traditional IRA funds to a Roth means paying income tax on a smaller amount today, with future growth and qualified withdrawals tax-free. If you hold multiple traditional-type IRAs with mixed pre-tax and after-tax money, the pro-rata rule applies: each conversion pulls a proportional share of both.
- Harvest losses in your taxable brokerage account instead. Losses on investments held outside a retirement account are deductible as capital losses: they offset capital gains dollar for dollar, and up to $3,000 of net capital losses can be deducted against ordinary income each year, with the excess carried forward. This mechanism exists only for taxable accounts, never for IRAs.
The bigger picture is simple. Your IRA’s value matters for retirement planning, but a dip in that value is not something the tax return recognizes. Track your basis, think carefully before taking any early distribution, and use the strategies that actually produce a tax benefit rather than hunting for one that no longer exists.