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Roth IRA conversions: No cross-breeding

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I’m converting to a Roth IRA. If I sell stock at a loss, can the loss offset the tax due on the conversion? M.B. Darien, Conn.

A. Not exactly. A loss from the sale of stock is netted with your other capital gains and losses for the year. If you have a net capital loss, you can use the excess to offset up to $3,000 of ordinary income in 2012 (including income from a Roth conversion) before carrying over any remainder to next year. Basically, however, you have to figure that capital losses will do little or nothing to offset the tax hit from a Roth conversion.

Tip: Conversely, a net operating loss (NOL) from a business activity may offset the income realized by converting to a Roth.

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