Can I use the Covid-19 Pandemic (D4-4482) as a Qualified federal declared disaster to deduct a casualty (theft) loss

[jaimemorgan]

IRS changed when you can debut a casualty (theft) loss ONLY when part of a declared federal disaster.  In 2022,  all my tools were stolen from my work truck.  I work as a plumber and was not reimbursed by insurance.  I'd like to deduct the theft using form 4684 and I believe that I can use the Covid-19 Pandemic which was a federally declared disaster (for CA this is DR-4482) to enable this deduction.

I don't see anything indicating I cannot do this - as I do live in the disaster area, and I did have a casualty loss....who knows, whoever stole it might have done it because of circumstances brought on by COVID.  Does anyone know if there is guidance on this?  Any help would be awesome!

[MonikaK1]

For tax years 2018 through 2025, if you are an individual, losses of personal-use property from fire, storm, shipwreck, other casualties, or theft are deductible only if the loss is attributable to a federally declared disaster (federal casualty loss). 

See FEMA's website to find out what disaster areas have been declared that produced the types of casualties allowable for personal-use property.

If the items stolen were business-use property used in a Schedule C or other business, they aren't subject to the same limitations for personal-use property.

A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.

Federal casualty losses, disaster losses, and qualified disaster losses are three categories of casualty losses that refer to federally declared disasters. The requirements for each loss vary. For more information, see Publication 547 or refer to the Instructions for Form 4684.

Theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.

To report the loss of business property due to theft in TurboTax Online:

1. Go to Deductions & Credits
2. Select Disasters, theft, and other property loss or damage
3. Click to add a casualty or theft
4. Fill in the Description of the event (e.g., "theft")
5. Fill in the date
6. Select Income-Producing Property as the Property Type
7. Choose "no" when asked if it was used in a passive activity (assuming it's used in your Schedule C business)
8. Enter Description of property, date acquired, cost basis, and any insurance reimbursement
9. Enter fair market value before and after the casualty (if lost due to theft, value after is 0)
10. Select "I used this property in my business"
11. Select Done

When you preview your return, look for the loss to appear on Form 4797.

[jaimemorgan]

Thank you so much for your response - but I'm still not clear if I can or cannot use Covid declared diaster as a basis for deducting my theft loss?  

This is a personal theft, (I'm W2) and not self-employed.  I know that For tax years 2018 through 2025, if you are an individual, losses of personal-use property from fire, storm, shipwreck, other casualties, or theft are deductible only if the loss is attributable to a federally declared disaster (federal casualty loss). 

This is why I'm asking - Covid-19 was a federally declared disaster at the time of this theft, so I can use that disaster to deduct my casualty theft losses?

[Carl]

I work as a plumber and was not reimbursed by insurance.

If you are a self-employed plumber, the restrictions don't apply. You can claim the loss as a business loss/expense. However, it's still a SCH A itemized deduction that may or may not affect your overall tax liability. In tax topic 515 at https://www.irs.gov/taxtopics/tc515 it states: (Underlined/italicized items done by me for emphasis.)

Report casualty and theft losses on Form 4684, Casualties and TheftsPDF. Use Section A for personal-use property and Section B for business or income-producing property. If personal-use property was damaged, destroyed or stolen, you may wish to refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer to Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook. These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records.

[jaimemorgan]

I'm not self-employed.  I'm W2.  My basic question is can I use the COVID-19 declared disaster (Valid when this theft occurred last year) to claim a casualty loss (theft) - it's about $20,000 loss of the tools I use for work.  I don't see any qualifications on the IRS website that only allows certain types of losses.  

My take is there is a declared disaster (there is) and you have a casualty loss (in my case theft) then I think I can claim the deduction.

[PatriciaV]

According to IRS Pub 547 Casualty & Theft Losses, under Personal Loss Property: If you are reporting a casualty or theft loss attributable to a federally declared disaster, check the box and enter the DR or EM declaration number assigned by FEMA in the space provided above line 1 on your 2021 Form 4684.

The IRS Pub 547 (2021) doesn't mention 2022, but COVID DR-4482 is listed on the FEMA website.

If you decide to claim this theft loss, be sure you can defend your position in Tax Court.

[Carl]

If you decide to claim this theft loss, be sure you can defend your position in Tax Court.

That's another way of saying "you are advised to consult a tax attorney." (Not the same as a CPA or EA)