Mutual Fund Losses

I am thinking about closing out 2 funds that have lost a lot of money this
year, CGMFX and PRNEX and investing it in a Roth IRA. I know I will have to
claim this money as income, but how can I deduct this money I lost? Please
talk to me as you would a 4 year old, I just don't understand this stuff.
Thank you for your time

Bobbybob,

Most of us have lost money on our investments this year.

Are your 2 funds in a taxable account? Or are they in a tax deferred account?

Selling and taking the money out of a tax deferred account, there is no loss to take. You would receive a 1099-R showing you how much of your account is taxable as ordinary income. This is reported on your 1040 line 15 or 16 depending on the type of account you have.

To contribute to any IRA you do need earned compensation. You can contribute to your ROTH IRA the lesser of your earned compensation or $5,000 ($6,000 if over age 50).

If your funds are in a taxable account, selling your 2 funds you will need to report the sale on Schedule D. Follow the flow of Schedule D determining the amount of your loss. Schedule D will also have you report your losses or gains on your 1040 line 13. Losses on this line are limited to $3,000. Losses greater than the $3,000 limit are carried forward to future years.