2009-9 the IRS ruled that taxpayer-investors that are victims of fraud or embezzlement schemes may take a theft loss. 2009-20 outlines safe-harbor rules for qualified investors with (specifically) Ponzi-scheme losses beginning for tax year 2008. Attach Form 4684 to your tax return to report gains and losses from casualties and thefts. For tax years 2018 through 2025, personal casualty and theft losses of an individual are deductible only to the extent they’re attributable to a federally declared disaster. Personal casualty and theft losses not attributable to a federally declared disaster are subject to the $100 per casualty and 10% rules, discussed later. Limitation on personal casualty and theft losses. Personal casualty and theft losses of an individual, sustained in a tax year beginning after 2017, are deductible only to the extent they’re attributable to a federally declared disaster. Limitation on personal casualty and theft losses. Personal casualty and theft losses of an individual, sustained in a tax year beginning after 2017, are deductible only to the extent they’re attributable to a federally declared disaster.
(a)Allowance of deduction.
(1) Except as otherwise provided in paragraphs (b) and (c) of this section, any loss arising from theft is allowable as a deduction under section 165(a) for the taxable year in which the loss is sustained. See section 165(c)(3).
(2) A loss arising from theft shall be treated under section 165(a) as sustained during the taxable year in which the taxpayer discovers the loss. See section 165(e). Thus, a theft loss is not deductible under section 165(a) for the taxable year in which the theft actually occurs unless that is also the year in which the taxpayer discovers the loss. However, if in the year of discovery there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, see paragraph (d) of § 1.165-1.
(3) The same theft loss shall not be taken into account both in computing a tax under chapter 1, relating to the income tax, or chapter 2, relating to additional income taxes, of the Internal Revenue Code of 1939 and in computing the income tax under the Internal Revenue Code of 1954. See section 7852(c), relating to items not to be twice deducted from income.
(b)Loss sustained by an estate. A theft loss of property not connected with a trade or business and not incurred in any transaction entered into for profit which is discovered during the settlement of an estate, even though the theft actually occurred during a taxable year of the decedent, shall be allowed as a deduction under sections 165(a) and 641(b) in computing the taxable income of the estate if the loss has not been allowed under section 2054 in computing the taxable estate of the decedent and if the statement has been filed in accordance with § 1.642(g)-1. See section 165(c)(3). For purposes of determining the year of deduction, see paragraph (a)(2) of this section.
Irs Loss From Theft
(c)Amount deductible. The amount deductible under this section in respect of a theft loss shall be determined consistently with the manner prescribed in § 1.165-7 for determining the amount of casualty loss allowable as a deduction under section 165(a). In applying the provisions of paragraph (b) of § 1.165-7 for this purpose, the fair market value of the property immediately after the theft shall be considered to be zero. In the case of a loss sustained after December 31, 1963, in a taxable year ending after such date, in respect of property not used in a trade or business or for income producing purposes, the amount deductible shall be limited to that portion of the loss which is in excess of $100. For rules applicable in applying the $100 limitation, see paragraph (b)(4) of § 1.165-7. For other rules relating to the treatment of deductible theft losses, see § 1.1231-1, relating to the involuntary conversion of property.
(d)Definition. For purposes of this section the term “theft” shall be deemed to include, but shall not necessarily be limited to, larceny, embezzlement, and robbery.
Irs Form For Loss From Theft
(e)Application to inventories. This section does not apply to a theft loss reflected in the inventories of the taxpayer. For provisions relating to inventories, see section 471 and the regulations thereunder.
(f)Example. The application of this section may be illustrated by the following example:
| Value of property immediately before theft | $3,500 |
|---|---|
| Less: Value of property immediately after the theft | 0 |
| Balance | 3,500 |
| Loss to be taken into account for purposes of section 165(a): ($3,500 but not to exceed adjusted basis of $4,000 at time of theft) | $3,500 |
| Less: Insurance received in 1963 | 2,000 |
| Deduction allowable for 1963 | 1,500 |
Irs Loss From Theft Protection Services
Irs Loss From Theft Act
