I have just discovered that the contribution I made in 2007 for Roth IRA was in excess, so now I'm considering making a withdrawal. IRS required to withdraw the original contribution and earnings to avoid penalties. My problem is that I have not earned positive income, but acctually made a loss on sale of stocks. I was able to figure out the loss amount and the net excess contribution withdrawal is now less than than my original contribution. What I can't figure out through is what do do with that loss. Do I claim as a loss on sale of investments in Schedule D? What if I already filed my return, to I need file an ammendement? This seems like a topic a few of us can relate to...how many people really made money towards the end of the year in the stock market. I can't seem to find anything in IRS instructions what to do with the loss. Any one?

According to the "Return of IRA Contributions" section of the Instructions for Form 8606 document:

"However, you must report the distribution and any related earnings on your 2007 Form 1040, 11a and 11b; or Form 1040NR, lines 16a and 16b. Attach a statement explaining the distribution. You cannot deduct any loss that occurred (see Pub. 590 for an exception if you withdrew the entire amount in all your traditional or Roth IRAs)."

Also, if you did not withdraw the excess contributions by the due date (including extensions) for filing your tax return, on that return you should have paid a 6% excise tax on the excess contributions.