@janelurie1-mac-c
I've gone through a Ponzi scheme deduction and recovery process for $0.5M. I personally think turbotax will never cover this because so many ambiguities. IRS's own guidance leaves plenty of room for interpretations. Since this doesn't impact majority of tax payers, doubtful IRS will make much effort. Current incomplete guidelines are already 10-15 years old. Based on this, it is very unlikely Turbotax will touch such area.
For someone who prepares their own taxes with tax software. Filing the deduction is tricky. Even CPAs need to consult with IRS. Filing when receiving recoveries are possible (I did mine) assuming you know what the calculations are. IRS relies on you to keep records to decide what amount of recoveries are taxable.
The general summary on filing deduction and recoveries are
1. IRS safe harbor guidelines provide deduction on the year of "discovery" of theft. Can claim 90% or 75% deduction depending on anticipated recovery. I chose 75%. Need to file form 4684 (section B part 1, part 2, section held for more than 1 year). Usually someone from gov has to say "Ponzi" or "Ponzi-like" In my case, SEC got involved and issued a letter stating "Ponzi-like" just for this purpose. But this was a $600M Ponzi scheme case. Much smaller amounts may not have such support.
2. Figure out the losses. Its not just principles. Could include phantom income (Ponzi investment returns which never received (just added to investment principle) but paid taxes in prior years)
3. On recoveries, if taken 75% deduction, then first 25% is tax free. After that is taxable (ordinary income, Sched 1 Part 1 Other income, include stmt on what it is. So Turbotax already handle the Ponzi recovery filing) Recoveries usually come from multiple sources as well. In my case, it came from 1) class action lawsuit to the auditor 2) lawsuit to the financial advisor 3) bankruptcy proceeding recoveries.
There are more complex schemes such as spreading loss deduction out longer via carry forwards. I didn't do this.
Anyway, you can see my posts in this thread for more info.
