I contributed $15,000 to a 529 savings plan several years ago for my child's education. He starts college in February 2009 and the account currently is worth only $13,000. When the funds are withdrawn to pay his tuition, can I take a tax loss?

I contributed $15,000 to a 529 savings plan several years ago for my child's education. He starts college in February 2009 and the account currently is worth only $13,000. When the funds are withdrawn to pay his tuition, can I take a tax loss?

Yes. However, you can take the loss only when all amounts from your account have been distributed and the total distributions are less than your unrecovered basis (the total amount of contributions to that account). You claim the loss as a miscellaneous itemized deduction, which means only amounts in excess of 2% of adjusted gross income are actually deductible. If you have distributions from more than one 529 plan during a year, you must combine the information (amount of distribution, basis, etc.) from all such accounts to determine whether you have an overall loss. For example, the loss from one account offsets the distributed earnings (if any) from any other accounts; there may be no overall loss.