If I was victim of a scam fraud do I have to report what I sent and as a fraud loss?

[MinhT]

If you are a victim of a scam or fraud, you can claim your loss as a casualty and theft loss in Schedule A - Itemized deductions.

You do not have to send any supporting documents with your tax return which can be e-filed. You have to keep all documents such as police reports, letters, e-mails, etc...) in your tax records.

However, the allowable loss has to meet a high threshold.

From the loss, you will deduct first $100, then deduct 10% of your adjusted gross income to arrive at the allowable loss.

TurboTax will make all the calculations for you.

To enter your loss in TurboTax, please follow these steps:

• Click on Search on the top right of your screen
• In the search box, type casualty loss
• In the search result page, click on Jump to Casualty loss
• TurboTax will take you through a questionnaire where you can enter the details of your loss

[friscomiller]

I was told that the IRS announced special relief for victims of fraudulent investment arrangements. 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.

According to IRS, the amount of the theft loss is determined by adding to the amount of the initial investment any additional investments and any amounts the taxpayer reported as income and reinvested, minus any amounts withdrawn over the years and any reimbursements or likely recovery.

If anyone can confirm this and let us know HOW to take this deduction, that would be greatly appreciated.

[Anonymous]

I keep trying to fill out the form 4684 and it comes up zero.  How do you get to take this on schedule A.  Lost 13000 to phone scam.

[JohnW222]

@Anonymous

Unfortunately, you can no longer deduct such a loss.  The deduction for personal casualty or theft losses has been suspended (eliminated) through tax year 2025, unless the loss occurred in a federally-declared disaster area and was directly caused by the disaster.

Please see the TurboTax Help article "What if I have property that was lost or damaged (a casualty loss)?" for more information.

[KAWest10]

I am so sorry to hear this.  I know hard to believe....my friends lost 8,000 to phone scam and now I am trying to see if they can claim it as a loss on taxes.  Could someone help?

[Critter-3]

Sadly there is nothing to be done ... the deduction is no longer allowed.  The original thread is very old from the time where you could take a deduction. 

[xiaoliling2]

how about the scam during the business investment. I am the victim of  real estate wire scam when I purchase rental property. This is not personal property as well, is this similar as the victim of the PONZI. 

[JulieS]

You may be able to use Section C of Form 4684 if your loss is due to a fraudulent investment arrangement, and you are a qualified investor.

To be considered a fraudulent investment arrangement the lead figure of the fraud:
    • Must have been charged under state or federal law with the commission of fraud, embezzlement or a similar crime that meets the definition of theft,
    • Or was the subject of a state or federal criminal complaint (not withdrawn or dismissed) alleging the commission of a crime,
    • Or a receiver or trustee was appointed with respect to the arrangement or assets of the arrangement were frozen.

The qualified investor must be:
    • A US person that,
    • Did not have actual knowledge of the fraudulent nature of the investment arrangement prior to it becoming known to the general public; and
    • The specified fraudulent arrangement is not a tax shelter, and
    • That transferred cash or property to a specified fraudulent arrangement.

If all of the above are true, you can use Section C of Form 4684 to claim your loss.

If the loss doesn't meet the conditions above, you may be able to deduct a nonbusiness bad debt.

A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. 

To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt. It's not necessary to go to court if you can show that a judgment from the court would be uncollectible. 

You may take the deduction only in the year the debt becomes worthless. You don't have to wait until a debt is due to determine that it's worthless.

The nonbusiness bad debt is recorded on the tax return as a short term capital loss, so it offsets capital gain income and up to $3000 can be deducted each year until the entire amount is used.