The average rate of return on most individual retirement accounts totals about 8 percent per year. However, that's not guaranteed, and a lot of it depends on what sort of investments you hold. High-risk, high-reward investments could result in a loss, at least in the short term, and depending on when you need to liquidate your IRA, this could mean claiming an investment loss on your taxes.
Step 1
Close your IRA or IRAs, if you own more than one. If you are liquidating multiple IRAs, all the IRAs must combine for a loss--if one nets a loss but the overall result is a gain, you cannot claim a loss. Be aware that you only need to liquidate one type of IRA for the purposes of claiming an investment loss--for example, if you want to claim an investment loss on your traditional IRAs and you have a Roth IRA as well, you only need to liquidate the traditional IRAs.
Step 2
Add up all nondeductible contributions in the accounts--that is, all contributions that have not had income tax paid on them. All the contributions to a Roth IRA, for example, have already had taxes paid on them, since contributions to a Roth IRA are not tax-deductible, and the contributions are taxed as income. This amount should be listed on each IRA's 1099-R form your account manager issues to you for each tax year. If you are unsure how much your nondeductible contributions add up to and the 1099-R does not clearly state the dollar amount, contact your account manager for clarification.
Step 3
Subtract the total nondeductible contributions from the total IRA funds to get your total investment loss. For example, if you contributed $50,000 in nondeductible contributions and your account holds only $45,000 after taxes, you would post a $5,000 loss.
Step 4
Total up all losses from other investments, if any exist, such as stocks and bonds, and add these losses to the total loss of your IRA. Multiply your adjusted gross income by 0.02, then subtract this number from the total losses from investments you have just totaled up. The resulting number, if it is positive, is the total amount you can list on your tax forms as a miscellaneous itemized deduction.
Step 5
List the deduction, if applicable, on Schedule A of your IRS Form 1040.
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