Construction loan

[lc3035]

Our builder made a first draw of $360,000. He immediately used the money to invest in his company (bought a truck, excavator, etc.). We are on the hook to repay this money to the bank. The money was withdrawn in 2023. We had to wait until 2024 to file criminal charges since the building contract stipulated construction was to be completed on 9/1/24. Is there a way to use this loss to reduce our tax burden? 

[DianeW777]

It depends. If the money was for your personal use property such as your home, then you are not allowed a deduction for your loss. 

• For tax years 2018 through 2025, if you are an individual, casualty or theft losses of personal-use property not connected with a trade or business or a transaction entered into for profit are deductible only if the loss is attributable to a federally declared disaster. IRS Publication 547 (see page 6)

Theft for Business use property: If this was in the course of your trade or business, see the next paragraph.

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. You don’t need to show a conviction for theft.

You have your police report and your loan documents showing the amount. Keep a copy of the cancelled check paid to the builder.

Keep in mind that if you do recover any money in a future tax year, 2025 forward, it will be considered as a taxable recovery of income.

For business property you can start your entry under Deductions and Credits > Other Deductions and Credits > Casualty and Thefts