Trust deduction for theft loss during covid

[ron6612 · Accepted solution]

Just came in from CPA and senior tax manager: this has been complicated research 

• President Trump did approve DR-4486-FL Major Disaster Declaration for Florida on March 25, 2020.  This allows casualty or theft losses of personal-use property that are attributable to the declared disaster, in this instance Covid-19 Pandemic.  There should be written justification of how the theft is attributable to the Pandemic in your records.
• The deductible amount of the theft loss is the adjusted basis of the property (not FMV – the IRS considers FMV of property subsequent to theft to be $zero).
• When the theft occurred would have bearing on this determination, prior to or post the passing of your mother – the basis step-up/down doctrine may apply.

[xmasbaby0]

@ron6612 Glad you sought help from a CPA and got the information you needed.  Hope it all works out for you.  Thank you for letting us know.

[ron6612]

Another question related to trust theft loss deduction during the national emergency:  we have pictures, old appraisals and bills of sale for the jewelry but no current appraisals as the theft occurred during a disposal of apartment assets after my mom died due to Covid. The work was done by a contractor and during the entire process we were not allowed to be in apartment. Since don’t have appraisals was going to use what we have to determine fmv at time of loss. What do you think about this approach?  I was also going to attach statements to 4684 explaining this. 

[ron6612]

Any thoughts on the appraisal note and inclusion of the statements to form 4684?

[Anonymous_]

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@ron6612 wrote:

Any thoughts on the appraisal note and inclusion of the statements to form 4684?

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As ostensibly stated by the tax manager, the step up/step down basis doctrine is applicable if the items were stolen after your mother passed. Therefore, you need to use that doctrine as the benchmark. 

Without a formal appraisal (which you might still be able to obtain), sometimes less is better in terms of explanatory statements, notes, and attachments.

[Opus 17]

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@ron6612 wrote:

Another question related to trust theft loss deduction during the national emergency:  we have pictures, old appraisals and bills of sale for the jewelry but no current appraisals as the theft occurred during a disposal of apartment assets after my mom died due to Covid. The work was done by a contractor and during the entire process we were not allowed to be in apartment. Since don’t have appraisals was going to use what we have to determine fmv at time of loss. What do you think about this approach?  I was also going to attach statements to 4684 explaining this. 

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You're going to have to get creative and make the best estimate you can.  You might take the proofs you have to  a jeweler or qualified appraiser and pay their fee for a report.  It might have qualifications or a wide range, but it would be better than nothing.

If audited, the IRS doesn't have to award any basis other than what you can prove.  At a minimum, you can prove the cost for some items, and I suspect jewelry does not go down in price very often.

[Anonymous_]

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@Opus 17 wrote:

If audited, the IRS doesn't have to award any basis other than what you can prove.  At a minimum, you can prove the cost for some items, and I suspect jewelry does not go down in price very often.

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That is correct and, without a formal appraisal or other sufficient proof, the taxpayer has to be prepared to accept the lowest value the IRS assigns if audited.

[ron6612]

Thanks once again!  Another question on flow through from 4684 to 1041, line 15a statement under Forms Mode. It seems like the software auto moves the theft loss from 4684 to form 15a line f on worksheet and column a under other deductions and then to 1041 line 15a. However, the form 4684 itself makes no mention of the deduction going to the 1041. It only mentions the 1040 and 1040-sr. Could you please explain?

[Anonymous_]

That should be mentioned in the instructions for the form (i.e., it is not printed on the form itself).

[ron6612]

Interesting, will have to see what happens as the 4684 2020 instructions not out yet. This may be because of the changes related to national declaration of emergency?  BTW, do you work for intuit?

[ron6612]

The 4684 asks for date acquired. Since the jewelry was acquired decades ago would it be ok to just enter the approximate year acquired as opposed to guessing on day and year?  For example just noting 1949 or 1990 as dates acquired?

[ron6612]

I had to enter a page 2 for the 4684 deductions since there were more than 4 and that was maximum per 4684 page. I used the zoom feature to add a page two and used same theft loss event (1) and same theft loss date. However the 4684 took a 500 exclusion deduction treating each page like a separate event as opposed to one. Is this a bug that would be addressed in an update?

[Anonymous_]

@ron6612 

Ensure that you enter "1" on Line C of page 2 of Form 4684 in the Casualty or Theft Section A Smart Worksheet so that the event appears as the same event as on page 1.

[ron6612]

I just printed out a sample copy of the 1041 and required schedules to  be filed and this did not include the "Estate and Trust Summary".  I was told by tax advisor to include a statement noting that the administration and casualty losses will not be taken on a form 706, if required.  I was able to add statements related to that and also that the expenses were all related to Covid during a Declared National Emergency.  The Estate and Trust Summary document that was created under IRC Elections notes to "keep form for your records."  Is there any way that this form could go to the IRS along with the rest of the return if filing electronically?  

[ron6612]

When entering "type of property" information details on 4684 under forms mode the data entry allows for much detail as to the description of each item.  However, the finalized printed 4684 form only prints out a certain number of the characters entered.  Does that mean that the user would need to enter the description without the hoped for description details? I'm entering jewelry information and it each item has a detailed description.