You might be able to deduct it as a theft loss, but there are a lot of limitations, so the deduction might not amount to anything. First of all, if you have insurance that covers theft, you must file an insurance claim. Most homeowners insurance includes theft coverage. The loss that you can claim on your tax return is only the amount that was not reimbursed by your insurance.
In calculating the deduction for a theft loss, you first have to subtract $100 from the unreimbursed amount of the loss. Then you have to subtract 10% of your Adjusted Gross Income (AGI). What's left after those subtractions is the amount you can deduct.
If you still have something to deduct, a theft loss is an itemized deduction. To get any tax benefit from the deduction, your total itemized deductions, including the deductible portion of the theft loss, have to be more than your standard deduction.
If you think you can take a deduction for the theft loss, see IRS Publication 547 for more details about the deduction, including the proof of loss that you will need. You can download Pub. 547 from the following link.
http://www.irs.gov/pub/irs-pdf/p547.pdf
Here's how to enter a theft loss in TurboTax.
Finally, when you posted your question you indicated that you are using TurboTax Free Edition. You cannot claim itemized deductions in Free Edition. You would have to upgrade to Deluxe or higher, or use any edition of the CD/Download TurboTax software.
You might be able to deduct it as a theft loss, but there are a lot of limitations, so the deduction might not amount to anything. First of all, if you have insurance that covers theft, you must file an insurance claim. Most homeowners insurance includes theft coverage. The loss that you can claim on your tax return is only the amount that was not reimbursed by your insurance.
In calculating the deduction for a theft loss, you first have to subtract $100 from the unreimbursed amount of the loss. Then you have to subtract 10% of your Adjusted Gross Income (AGI). What's left after those subtractions is the amount you can deduct.
If you still have something to deduct, a theft loss is an itemized deduction. To get any tax benefit from the deduction, your total itemized deductions, including the deductible portion of the theft loss, have to be more than your standard deduction.
If you think you can take a deduction for the theft loss, see IRS Publication 547 for more details about the deduction, including the proof of loss that you will need. You can download Pub. 547 from the following link.
http://www.irs.gov/pub/irs-pdf/p547.pdf
Here's how to enter a theft loss in TurboTax.
Finally, when you posted your question you indicated that you are using TurboTax Free Edition. You cannot claim itemized deductions in Free Edition. You would have to upgrade to Deluxe or higher, or use any edition of the CD/Download TurboTax software.
Turbotax does not have; Revisit button for Casualties and Thefts. Not a thing about casualties, It does have something about theft but only for items but not monetary! You have to enter the what item, cost and date of purchase. So, Now what?
The original post was from last year, for 2017 tax returns. Under the new tax law, for tax years 2018 through 2025, the personal casualty and theft loss deduction isn’t available, except for casualty losses incurred in a federally declared disaster.
According to the IRS: "The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law.” That would include building contractor fraud, for example.
Unfortunately, the theft loss deduction is limited, as of 2018. "For tax years 2018 through 2025, if you are an individual, casualty and theft losses of personal-use property are deductible only if the losses are attributable to a federally declared disaster (federal casualty loss)."
See <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p547.pdf">https://www.irs.gov/pub/irs-pdf/p547.pdf</a> for more information.
Previously, IRS announced special relief for victims of fraudulent investment arrangements like Bernard Madoff's Ponzi scheme that was discovered in 2008. I was told that the IRS announced that investors can take an ordinary loss deduction and the deduction isn't subject to the pre-2018/post-2025 2%-of-adjusted-gross -income (AGI) limit on miscellaneous itemized deductions, the income-based limitation on itemized deductions, or the 10% of AGI limitation on the deduction for casualty losses.
Taxpayers can deduct the loss in the year the theft was discovered. This deduction can be taken if the loss isn't covered by a claim for reimbursement or other recovery that has a reasonable chance of occurring.
This is all the info I have. If anyone can tell me HOW to take this deduction, I would appreciate it. I was a victim of an investment scam and lost $20K
hi friscomiller, so what is the answer to this exempt of pre-2018/post-2025 2%-of-adjusted-gross -income (AGI) ?
Ponzi scheme losses appear to continue to be available under Section 165(c)(2) following tax reform. The losses that were limited by the TCJA were personal casualty losses subject to Section 165(h). Personal casualty losses are losses not incurred in connection with a trade or business or a transaction entered for profit. Rev. Rul. 2009-9 provides that Ponzi scheme losses are considered losses arising from transactions entered for profit under Section 165(c)(2) and are not subject to the limitations under Section 165(h) or the limitation on miscellaneous itemized deductions.
The primary negative impact of the TJCA on these losses is the elimination of the NOL carryback. Taxpayers suffering these losses will now need to carry them forward which may delay realization of the tax benefit of these losses. The safe harbor methods for claiming the loss outlined in Rev. Proc. 2009-20 appear to still be valid for 2018 returns and are outlined in the instructions to the Form 4684
BAD NEWS: Put 4684 in the "Find Box" and go right to form 4684. One of the questions is "Did you have losses from fraudulent investment arrangements?" Answer yes and guess what? TurboTax cannot handle this. You get a message: "TurboTax does not currently support losses from fraudulent investment arrangements. We recommend you consult a tax professional. We apologize for any inconvenience." Basically, you can deduct the loss, but NOT using TurboTax
hi thanks for the reply! To be more specific, regardless if it is with turbotax, how about money loss due to phone scam? Like someone pretend to be some authority (like IRS) and scammed all my money? Is it still deductible? (I do retain the police record while i report to the local police, but the criminals have disappeared and are probably never would be caught)
@ecilay Under the new tax law, for 2018 through 2025 there is no deduction for money lost in a telephone scam.
Unfortunately ecilay is correct. ONLY Ponzi scheme losses are deductible
I appreciate your recent message. I've been told that the recent tax law (passed in 2017, effective 2018?) does not permit deductions for theft unless it's due to a declared presidential emergency. This would eliminate major losses due to theft, fire, scam, etc. and makes a substantial loss hard to offset for the average person. Is it still possible to deduct such occurances?
Thanks
The new tax law eliminated casualty and theft losses as a deduction on your federal return unless you have a loss that qualified in a federal disaster area.
I know this is an old post, but I'd like to share my experience with this topic. I had to amend my Dad's 2017 return to put in a loss for a Ponzi-scheme that he got sucked into. I've been using Turbotax forever, so I thought it would be easy to just amend the 2017 return and add Form 4684 using the interview questions. However, I got a message saying that Turbotax (I was using Home & Business) does not let you do Form 4684 for theft. I ended up having to buy H&R Block Premium, redoing the 2017 tax return so that I could then amend the 2017 tax return. It was a MAJOR hassle and headache - particularly since the #'s between the two returns on the original 2017 tax return for some reason were coming out differently (because of K-1's I think). Anyway, all this to say that if others have this same problem they are going to have to find something other than Turbotax to do their taxes... and like people have said, from 2018-2025 Ponzi-scheme losses can't be written off. Even though Turbotax failed me on this, after using H&R Block software I DEFINITELY still find Turbotax to be a far superior program to work with.
The response as helpful. I'd like ti o print the response
IRS Form 4684 is available in HRB Premium and Business for tax year 2020. Part II states " I am claiming a theft loss deduction pursuant to Revenue Procedure 2009-2020 from a specified fraudulent arrangement conducted by the following individual or entity". I anticipate completing this form for the loss I incurred due to an online scam and see if I get called in. I have documentation from my bank as well as local police.
@rwbjr It's available on TurboTax too but as you've been told already it will not help you. You can no longer deduct these types of losses except in very limited circumstances, and you do not appear to have one of those circumstances (for example you can deduct the loss against a very rare thing called a casualty gain but you don't have one of those.)
The loss isn't deductible. It's tragic, but your personal loss is not tax-deductible. You cannot deduct this, using any software or even if you go in-person to HRB.
Revenue procedure 2009-20 (it's -20 not -2020) was issued and valid in 2009 and through 2017 but the tax law changes in 2017 make it useless to you now.
Were you able to get anything back on your scam situation? We had $80,000 loss last year. Trying to figure things out.
Theft losses may be deductible. See the updated Jan 2022 version Topic No. 515 Casualty, Disaster, and Theft Losses - Internal Revenue Service for full details. Which includes:
Theft Losses
A 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.
@DJCantello2
What does it means? I had the similar simulation for wire scam when I purchase investment property
Perhaps. Review your situation in this IRS publication 2021 Instructions for Form 4684 Casualties and Thefts
Limitation on personal casualty and theft losses page 1 states:
For tax years 2018 through 2025, if you are an individual, casualty or theft losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. Personal casualty and theft losses attributable to a federally declared disaster are subject to the $500 per casualty limitation.
Losses From Ponzi-Type Investment Schemes on page 7 states:
The IRS has issued the following guidance to assist taxpayers who are victims of losses from Ponzi-type investment schemes.......
[Edited 3/24/2022 5:29 PM PST]
Can anyone help to identify whether I am able to deductible the money, when I purchase my rental property, I received the wire instruction from fake title company and I lost the money $X. Of course, I do not know who is the thief. Later I paid the money to the right account again. Qustions: (1) $X is Ponzi scheme? (2) $X loss is part of the business property loss. (rental is part of the business property). (3) Does this X belong to cost of the purchased rental property?
Thanks,
After the Tax Cuts and Jobs Act was passed into law (2017), many forms of casualty losses that were previously deductible on Form 4684 (like Ponzi schemes and scams) no longer qualify as tax deductions. Per IRS Tax Topic 515, the only deductible casualty losses must be from a federally declared disaster.
Although this loss was associated with the purchase of business property, the amount would not be included in the basis of the property. It is a non-deductible personal loss.