Trust deduction for theft loss during covid

[ron6612]

I have researched this on the internet and have had difficulty in getting an answer via IRS regulations.  My mom passed away last month due to Covid and during the disposal of her belongings it was found out that several valuable jewelry items were stolen during the process.  In preparation of the 1041 trust estate income tax return for 2020 would like to know if this loss can be deductible.  I have read that theft deductions may be disallowed due to the Tax Act but may be allowed if a national disaster has been announced by president.  I think that was done in March 2020.  It seems that the listing of stolen items would be entered into Turbo Tax Business via form 4684.  The first question is would the deduction be allowed for each of the items or is there a limit to the number of items and secondly can multiple items be listed in Turbo Tax Business with the appraised values of each loss but no original cost information.  We have pictures of the items stolen, a police report has been given and the insurance reimbursement is limited to $1,500.  The value of the lost items is close to $30,000.  We have appraisals but not original cost receipts as many of the items are very old.  Any help to these questions and/or some written guidance would be greatly appreciated!

[M-MTax]

Sorry about your Mom. Was the stuff stolen before she passed away or after? If before then the loss is the lower of the cost basis or fmv so you have to know the cost. If after then the basis is the fmv on the date of death so you have both the basis and the appraisal and can enter the fmv on the date of death as the basis.

[ron6612]

Thanks for your reply!  Do you know where I can get information on how this all works? In my research I’ve been confused in my readings as to does it need to be national emergency, how many items can be listed (we have about 10), is there a deductible per item, etc.  Has the Tax Act changed the rules?  It’s difficult to get straight information on 1041 as the research tends to bring in 1040 rules vs. 1041. 

[ron6612]

Also, assume deductions taken on form 4684?

[M-MTax]

It's form 4684 and there has to be a national disaster declaration......an emergency is not enough. BUT, the rules for 1041 are the same as those for 1040 so you can use the 1040 rules.

[ron6612]

Covid has been declared a national emergency back in March. Do you know if I can deduct each of the 10 items less nominal insurance reimbursement directly against trust income dollar for dollar and then transfer DNI to two beneficiaries?

[xmasbaby0]

@ron6612 So sorry for the loss of your mother.    Sorry---but you are confusing the rules about theft and casualty losses.  The tax laws that changed for 2018 and beyond eliminate the deduction for casualty or theft losses on your federal tax return unless you were in a federally declared disaster zone--such as an area that had a hurricane, wild fires, tornado, etc.   The pandemic has not changed the rule for your very unfortunate theft loss.

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

[ron6612]

Is this the same rule for trust estates and from 1041?  Could not find that notation. 

[ron6612]

From journal of accountancy 

https://www.journalofaccountancy.com/news/2020/sep/irs-trust-and-estate-expense-deductions.html

Shared via the Google app

[xmasbaby0]

@ron6612 The article you referenced does not talk about casualty or theft losses.  It is talking about miscellaneous itemized deductions that were subject to the 2% of AGI threshold prior to the new tax laws.

Casualty and theft deductions--prior to the tax reform laws, were subject to a threshold of the amount over 10% of AGI, less $100.  Theft losses were not treated as "Miscellaneous" itemized deductions.

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For the user's sake, I would love to be wrong about this.  Any thoughts?

[Anonymous]

Federal casualty loss. A federal casualty loss
is an individual’s casualty or theft loss of
personal-use property that is attributable to a
federally declared disaster. The casualty loss
must occur in a state receiving a federal
disaster declaration. If you suffered a federal
casualty loss, you are eligible to claim a
casualty loss deduction. If you suffered a
casualty or theft loss of personal-use property
that was not attributable to a federally declared
disaster, it is not a federal casualty loss, and
you may not claim a casualty loss deduction
unless the exception applies.

this is from the instructions for form 4864 casualty and theft losses. notice the words I have bolded. It would be impossible to maintain the theft was attributable to the pandemic.

by the way, was a police report filed? were the items covered by insurance? if so was a claim made?   if not the estate may want to consult legal counsel to see if the trustee was negligent and therefore can pursue him for recovery. 

[ron6612]

Yes, a police report and insurance claim were made. The maximum insurance reimbursement is 1500 but the value was about 25,000 based on fmv. The theft was noted during disposition of estate as the jewelry was gone. Just trying to determine if this would be allowed as 4684 deduction on 1041. The family could not be there for disposing of belongings due to Covid. 

[ron6612]

Now I'm finding out in talking to a tax accountant that the loss had to occur during a declared national disaster not a declared national emergency.  I think that Trump under the Stafford Act declared Covid 19 back in March to be a national emergency?  Would this preclude our family in taking the deduction?

[xmasbaby0]

Please see the link already provided to you.  Covid-19 has not been declared a national disaster.  Covid-19  has not changed the tax laws for thefts and casualites.  But you should really seek paid professional tax help with this so that you will be able to believe the reply you get.  Since you believe a lot of money is at stake and you are clearly struggling with a difficult and complicated estate return, it would be better for you to seek paid tax help.

[Anonymous]

my conclusion is you are not entitled to a deduction.