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Level 2

Theft losses deductions questions

Hi guys,

I got question on Theft losses deductions. Last year, I got interesting life. First, my house got flood due to water pipe broke. Insurance paid me $28K. Then I decided to combine repair with home expansion. Unfortunately, I got criminal contractor. He is so much fraud with fake invoices, fake bank statement, even fake city inspector. In my neighbors, 6 families got similar situation. But he get all our 6 family money and ran away. I end up hiring another contractor to finish the job. The fake invoice is around $30K. The cost of hiring 2nd contractor cost me $60K since he did not finish the job. Although we reported to police, police took as criminal case. I doubted we can get any money back. So, I wonder can I took the $60K loss via theft. The P547 claimed that we can deduct after gains. Am I right?

Please help!

Tks a lot!

2 Best answer

Accepted Solutions
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Expert Alumni

Theft losses deductions questions

You can reduce personal casualty gains (e.g., insurance reimbursements) by any casualty losses not attributable to a federally declared disaster. Any excess gain is used to reduce losses from a federally declared disaster. Any leftover gains get reported on Schedule D, Capital Gains and Losses and may be subject to tax if there are no other capital losses to offset them.

 

According to IRC 1033, a taxpayer has a gain from casualty or theft if he or she receives an insurance payment or other reimbursement that is more than the adjusted basis of the property that is destroyed, damaged, or stolen.

 

The gain is computed as follows:

• The amount received, minus

• The taxpayer’s adjusted basis in the property at the time of casualty or theft.

 

Amount received

The amount received includes any money plus the value of any property received minus any expenses incurred in obtaining the reimbursement. It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property.

 

You will use Form 4684 to report this.

 

 

@zenglian

 

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Expert Alumni

Theft losses deductions questions

Without knowing all the specifics of the situation and being able to personally review all of the documentation (insurance payout documents, police reports, appraisals, invoices, fraudulent documents from the contractor, etc.), I cannot provide advice specific to your situation. There are many moving pieces and parts here. 

 

What I can do is recommend that you thoroughly study IRS Publication 547, the instructions for Form 4684, and IRC 1033 before you proceed further. It may also be beneficial to have a consultation with a tax professional in person so that he/she can review all of your paperwork and provide a more holistic view on how to approach this situation. 

 

I wish you the best of luck here. 

 

@zenglian

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6 Replies
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Level 15

Theft losses deductions questions

Sorry but theft and casualty losses are not deductible on your federal return.  Casualty losses are only deductible if you were in a federal disaster zone and were affected by a natural disaster.  A broken water pipe is not a natural disaster.

 

 

https://ttlc.intuit.com/questions/4482873-which-federal-tax-deductions-have-been-suspended-by-tax-re...

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
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Expert Alumni

Theft losses deductions questions

I'm sorry to hear about the experiences you had. Unfortunately, the Tax Cuts and Jobs Act limited deductible losses to those incurred in a federally declared disaster. If the water pipe breakage originated from a federally declared disaster, here's how to deduct it in TurboTax Online:

 

  • Click Deductions & Credits (tab at top of screen).
  • Scroll to the bottom and click Other Deductions and Credits.
  • Click Start next to Disasters, theft, and other property loss or damage.
  • Proceed through the interview questions. 

@zenglian

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Level 2

Theft losses deductions questions

Hi,

Tks for your answer, as I read P547 stated below:

An exception to the rule of federal disaster zone, limiting the personal casualty and theft loss deduction to losses attributable to a federally declared disaster, applies if you have personal casualty gains for the tax year. In this case, you will reduce your personal casualty gains by any casualty losses not attributable to a federally declared disaster.

Since I got insurance payment due to water flood that can be treated as gain, then I can deduct losses not federally declared disaster? Am I right?

Appreciated!

 

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Expert Alumni

Theft losses deductions questions

You can reduce personal casualty gains (e.g., insurance reimbursements) by any casualty losses not attributable to a federally declared disaster. Any excess gain is used to reduce losses from a federally declared disaster. Any leftover gains get reported on Schedule D, Capital Gains and Losses and may be subject to tax if there are no other capital losses to offset them.

 

According to IRC 1033, a taxpayer has a gain from casualty or theft if he or she receives an insurance payment or other reimbursement that is more than the adjusted basis of the property that is destroyed, damaged, or stolen.

 

The gain is computed as follows:

• The amount received, minus

• The taxpayer’s adjusted basis in the property at the time of casualty or theft.

 

Amount received

The amount received includes any money plus the value of any property received minus any expenses incurred in obtaining the reimbursement. It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property.

 

You will use Form 4684 to report this.

 

 

@zenglian

 

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

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Level 2

Theft losses deductions questions

Hi  Gisele,

Appreciate your kind response. Since I got gain via insurance claims of $28K that is much less than my casualty loss due to criminal contractor of $60K, can I report loss of $32K ($60 minus $28K) using form 4684? I believe this is probably the only way we can get little bit compensation due to criminal contractor who has 

Please help!
Tks!
Liang

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Expert Alumni

Theft losses deductions questions

Without knowing all the specifics of the situation and being able to personally review all of the documentation (insurance payout documents, police reports, appraisals, invoices, fraudulent documents from the contractor, etc.), I cannot provide advice specific to your situation. There are many moving pieces and parts here. 

 

What I can do is recommend that you thoroughly study IRS Publication 547, the instructions for Form 4684, and IRC 1033 before you proceed further. It may also be beneficial to have a consultation with a tax professional in person so that he/she can review all of your paperwork and provide a more holistic view on how to approach this situation. 

 

I wish you the best of luck here. 

 

@zenglian

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

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