• Irs Form For Loss From Theft
• Irs Loss From Theft Charges

Before 2018, this line was line 40. However, recent IRS revisions to Form 1040, which are effective for the 2019 filing season, changed the location of itemized deductions or the standard deduction. Claiming Your Casualty and Theft Losses the Right Way. It’s no secret that the tax law can be confusing. 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. Under the IRS rules, an investor in a Ponzi scheme is entitled to deduct his or her losses as a theft loss, instead of a capital loss from an investment. This is good for the investors because the deduction for capital losses from investments is normally limited to a maximum of $3,000 per year. There is no such limit for theft losses.

The new Tax Cuts and Jobs Act (TCJA) amends Internal Revenue Code Section 165 further restricting our ability as individual taxpayers to write off CASUALTY LOSSES going forward solely to 'disaster areas' as declared by the POTUS.

Say whaaaat ?!?!?!?!?!?!?!?

Effective immediately this new restriction detailed in the US Tax Code WILL HARM ANYONE who falls victim to any tragedy that does not rise to a less than fully clear standard set by our beloved Twitter-In-Chief, aka #StableGenius (presently 'trending').

Perhaps your first thought is - no big deal. But dear reader please be advised that this change will have profound implications that will take years to play out, if not for you then perhaps someone close to you.

Not only are casualty losses further restricted it also appears that theft losses will also only apply to federally declared disaster areas as well.

That is #YUUUUGE!

This post glances over 8 points regarding casualty and theft losses - enough to make you a hit at the next cocktail party:

1. How reporting for income tax purposes will (probably) shake out on your 2018 personal income taxes forward (through 2025)
2. How to report these types of losses on your 2017 income taxes via the new IRS Form 4684. Hint... special consideration is provided for SOME hurricane victims.
3. Casualty v. Theft Loss - What IS the difference?
4. Safe Harbors for Determining Casualty and Theft Losses
5. Caveats for some hurricane survivors
6. Tidbits for the good reader in the great state of Colorado
7. What Happens if you experience a personal financial gain from a casualty
8. The 'bright' side of a casualty loss - if there is such a thing

First though in that everything seems to be 'fake news' these days, please allow me to indulge in a brief editorial. If unforeseen circumstances might not impact you, stop reading immediately and call me, I want your life. Be advised...

Mother Nature does not discriminate!

Running way outside of my lane here I am not shy about emphatically promoting as part of any planning effort that EVERYONE look closely at their insurance policies (all of them) and make a concerted effort at understanding the impacts going forward of a wide assortment of prospective casualties or thefts.

Loss of shelter, loss of transportation, loss of toys (expensive or otherwise); tragedy and disaster happens all the time to many of us. The majority of these tragedies never make the news much less rise to the threshold of being declared a federal disaster. Mother Nature is accountable to no one so ask yourself these questions:

1. How will your life change if you lose X, or Y, or Z tomorrow?
2. What is your deductible annually and/or per incident?
3. How close will you be getting to replacement cost if you lose X, or Y, or Z tomorrow?
4. Do you have the resources to replace that which is cherished if it is lost tomorrow?

If you are a victim of tragedy the last thing you want to lose is your dignity.

Now on to the meat of the post...

Before the TCJA, individuals could claim as itemized deductions certain personal casualty losses, not compensated by insurance or otherwise, including losses arising from fire, storm, shipwreck, or other casualty, or from theft.

There were two limitations to qualify for a deduction:

• a loss had to exceed $100, and
• aggregate losses could be deducted only to the extent they exceeded 10% of adjusted gross income.

Starting immediately and for tax years 2018 through 2025, the personal casualty and theft loss deduction is only available for casualty losses incurred in a federally declared disaster by our President.

• a loss had to exceed $500, and
• aggregate losses could be deducted only to the extent they exceeded 10% of adjusted gross income.

So if you suffer a personal casualty loss from a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act you will be able to claim a personal casualty loss as an itemized deduction, subject to the $500-per-casualty and 10%-of-AGI limitations mentioned above.

The BIG change is that the deduction generally won't be allowed, except for PRESIDENTIAL declared disasters.

I interpret this to mean that in order for the value of a stolen object from you or me to be allowed as a tax deduction it must occur as part of a federally declared disaster.

It will be interesting to watch the regulations parse out in these regards.

People who have experienced a casualty or theft loss know that if they were insured they generally speaking after their deductible got reimbursed a fraction of the depreciated current market value of their cherished possession, NOT the replacement cost.

For those folks in the past it was comforting to know that the cost incurred to replace the item less the insurance reimbursement was generally speaking tax deductible within the limitations above. We no longer have that luxury as US Taxpayers unless our beloved leader bequeaths it so.

Casualty v. Theft Loss - What IS the difference?

For income tax reporting purposes theft includes the taking of money or property by the following means:

• Blackmail
• Burglary
• Embezzlement
• Extortion
• Kidnapping for ransom
• Larceny
• Robbery
• False representations

The taking of the property must be illegal under the law of the state where it occurred and it must have been done with criminal intent according to IRS Revenue Rule 72-112. However, you need not show necessarily show a conviction for theft, unless it it a Ponzi Scheme.

As an editorial from an old fart routinely engaged in trench warfare with our esteemed authorities I always encourage the filing of a police report for substantiation purposes on the off chance the IRS chooses to scrutinize. Also keep in mind that as best I can tell IRS Form 4864 can only be used in Presidential Declared Disasters and this purportedly this applies to thefts as well.

A casualty is a sudden, unexpected, unusual but identifiable event like a fire, storm, hurricane, tornado, flood, earthquake, drought that causes damage, destruction, or loss of property. The damage must also be permanent in nature and not merely a temporary decline in value. And now it must also be declared by the POTUS.

Safe Harbors for Determining Casualty and Theft Losses

In a set of Revenue Procedures, the IRS has provided safe harbor methods that you may use in determining the amount of casualty and theft losses for their homes and personal belongings.

• Rev. Proc. 2018-8 (effective 12/13/17) offers four safe harbor methods that apply to any qualifying casualty or theft loss, as well as three methods that apply only to losses occurring as a result of a federally declared disaster.
• Rev. Proc. 2018-9 provides a safe harbor method that allows a homeowner to use one or more cost indexes to determine the amount of a home loss due to Hurricanes Harvey, Irma, or Maria (2017 Hurricanes).

Reporting for tax year 2017 - Caveat for some hurricane survivors

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Act) provided relief to taxpayers who suffered a net disaster loss due to Hurricanes Harvey, Irma, or Maria.

The Disaster Act eliminated the 10% of AGI reduction and allowed taxpayers claiming the standard deduction to take advantage of the casualty loss provision.

In response to this, the IRS has released a new draft version of Form 4684 (Casualties and Thefts) for the 2016 tax year. Changes to the form can be found in Section A (Personal Use Property), lines 11 and 15. The IRS also has released updated draft instructions for Form 4684 that take into account these changes. Revised instructions to IRS Form 4864 can be found at www.irs.gov/pub/irs-dft/i4684--dft.pdf.

For those good reader in the great state of Colorado

(Hopefully you've made it this far into the post)

My contacts high up inside the Colorado Department of Revenue assure me that the Department understands some taxpayers will be unable to meet Colorado filing and payment deadlines as a result of various natural disasters. As a result relief on state-collected taxes for Colorado taxpayers who have been affected by recent hurricanes will be provided. Theses measures should mirror IRS measures in the same declared disaster areas.

“Affected taxpayers” include individuals who live in and businesses whose principal place of business is located in the covered disaster area. Taxpayers not in the covered disaster area, but whose tax return records that are necessary to meet a deadline are in the covered disaster area,
are also entitled to relief.

In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Colorado Peeps - Here's the CATCH!

• The Department will not automatically apply this tax deadline waiver.
• Affected taxpayers who reside or have a business located in the covered disaster area must call the tax information hotline at 303-238-SERV (7378) Monday through Friday from 8 a.m. to 4:30 p.m. to request the extended deadline after they receive a bill.
• The deadline waiver applies to Colorado State tax returns and estimated payments that have either an original or extended due date occurring between Aug. 23, 2017, and Jan. 31, 2018.
• Colorado taxpayers residing in designated disaster areas by the federal government will have until Jan. 31, 2018, to file tax returns or make payments that were due during the designated disaster.

In addition penalty relief will be provided during the extension period.

Irs Form For Loss From Theft

What Happens if you experience a personal financial gain from a casualty?

This is where it might get a little confusing so if you eyes start to glaze over and you want to check out, do know that I have your back.

When you have a personal gain from a casualty, personal casualty losses you can still be offset against those gains, even if the losses are NOT incurred in a federally declared disaster.

A personal casualty gain is the recognized gain from any involuntary conversion of non-business, not-for-profit property arising from fire, storm, shipwreck, or other casualty, or from theft, such as where the taxpayer receives an insurance payment or other reimbursement that exceeds the taxpayer's adjusted basis in the destroyed, damaged, or stolen property.

If personal casualty losses exceed personal casualty gains for a tax year, the losses are allowed only to the extent of the sum of the amount of the personal casualty gains for the tax year, plus so much of the excess of personal casualty losses over personal casualty gains as exceeds 10% of your Adjusted Gross Income (AGI).

Irs Loss From Theft Charges

Clear as mud, right? Explained otherwise, when you have both personal casualty gains and personal casualty losses for a tax year, first reduces the amount of personal casualty gains by the amount of non-federal casualty losses.

• Any remaining personal casualty gains are then used to reduce the amount of your deductible federal disaster losses.
• Any remaining federal disaster losses are deductible to the extent they exceed the 10%-of-AGI floor.

This example might help

Let's say your AGI is $100,000 for the current tax year. After applying the $100-per-casualty limit, you also has $20,000 of non-federal casualty losses, $30,000 of federal disaster losses, and $25,000 of personal casualty gains for the year.

• The non-federal casualty losses are offset against personal casualty gains
• Personal casualty gains to be applied against your federal disaster losses are reduced to $5,000 ($25,000 − $20,000).

To determine how much of the federal disaster losses are deductible:

1. deduct $5,000 of federal disaster losses to offset the remaining personal casualty gains.
2. apply the 10%-of-AGI limit (10% x $100,000 AGI is $10,000).
3. Of the remaining $25,000 in federal disaster losses, you may deduct $15,000 ($25,000 − $10,000).

On the bright side if there is such a thing

1. If your home is located in a federally declared disaster area according to IRS [§1033(h)(1)] and IRS Revenue Rule 95-22 no gain is recognized on any insurance proceeds received for unscheduled personal property that was part of the contents of the home regardless of your basis in the unscheduled property or how the insurance proceeds are used.
2. A casualty loss is not considered a deduction under the passive loss rules as per IRS Notice 90-21. As such a loss will be allowed in full even if it involves a passive rental activity.

For questions, comments or clarifications please feel welcome to contact me anytime. I'm waiting with baited breath for our beloved 'president' to declare all of Chicago a federal disaster area. Let the good times roll!

John R. Dundon, EA [720-234-1177, John@JohnRDundon.com]. John is a lifelong student of the US Tax Code; enrolled with the United States Treasury Department to practice before the IRS (Enrolled Agent # 00085353); under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent; regulated under USC 31 Section 330 & USC 26 Section 7525a.3.A; governed under US Treasury Cir. 230.

If you were the victim of theft, a natural disaster, or any other qualifying loss last year, you can claim a percentage of your loss as part of your tax deductions, and save a bundle.
This page:
• Describes casualty and theft tax deductions.
• Makes clear what is deductible in the event of a loss.
• Explains how to claim these two tax deductions.

Claiming Deductions Made Simple:

If you want to avoid costly mistakes, while at the same time taking advantage of all credits and deductions, you'll want to do your taxes with TurboTax this year.
TurboTax helps you work quickly and easily, and it double-checks your return to help you get the largest possible refund. You can even file your state taxes at the same time, and get your state refund (which may be substantial) much faster than if you mail a paper return.

Deducting Unavoidable Loss From Your Taxes

Casualty and theft loss are recognized by the IRS as valid tax deductions. The rule of thumb to keep in mind if you think this deduction applies to you is the occurrence must have been unpreventable.
For instance, damage caused by severe weather or a loss due to theft are considered valid income tax deductions, while damage by usual wear and tear or accidental loss of property are definitely not valid income tax deductions.
Basically:
If your loss was not avoidable, tax deductions are allowed.
You cannot deduct the loss of your brand new iPhone that you left in a movie theater, no matter how much it stings. Although it might be a good idea to have it insured.

How to Determine the Amount of Loss Your Can Deduct

As the victim of unfortunate circumstances, you are eligible to deduct a percentage of your loss as one of your income tax deductions. The amount of your casualty and loss tax deductions varies depending upon your adjusted gross income and the value of your loss.
FIRSt, figure out the fair market value of your loss. Getting an appraisal or comparing costs and current market values are two methods for determining the actual value of any loss or casualty you are claiming as tax deductions. Although it seems a bit extreme, it is a good idea to take pictures of any valuable items you own. This way, you'll easily be able to ascertain the worth of any stolen goods.
Compare the fair market value of your loss with the amount it originally cost you. The amount you use to calculate your total deductible amount is the lower of the two.
In case of property damage calculate the decrease in the fair market value of your land or house and compare it to the original cost plus the cost of any improvements you may have made. The deduction you are allowed is the lesser of those two amounts, reduced by both $100 and an additional 10% of your adjusted gross income.
Remember, if you receive any compensation for your loss from insurance or the government, you must reduce your loss by that amount before you calculate any casualty and loss tax deductions.

Sidebar
The easiest way to claim these income tax deductions, and all other 2017 federal tax deductions is to use an easy online tax preparation service. You'll avoid costly mistakes, and if you take the TurboTax online filing interview, you can have a tax professional look over your return and recommend changes that could save you even more.

How to Claim the Casualty and Theft Tax Deductions

FIRSt, you must be able to show proof of loss in case you are ever audited by the IRS. Although this can be tricky, especially in cases of stolen property, you should attempt to gather as much of the following information before making any casualty or loss tax deductions:
• A description of your casualty or loss
• The date of occurrence
• Proof that you owned the property
• Proof of the original cost of the property
• The fair market value at the time of the loss
• The amount of any reimbursement you received.
To claim any casualty and/or theft deduction, IRS Form 4684 needs to be completed for every instance of loss and included with your paper return. This tax form walks you through the calculations and asks for all the necessary information.
After the form is completed, your total deductible amount is entered in the appropriate line on Schedule A, If you e-file, these additional forms and calculations are taken care of for you once you enter the basic information.

Related IRS Publications

You can get more information about casualty and theft tax deductions directly from the IRS, in the form of IRS Publication 547
To help you figure out your loss amount, the IRS provides two workbooks: Publication 584 for personal use property, and Publication 584b for lost business property.
If you file a paper tax return, you will also need to attach IRS Form 4684, and fill in the appropriate line in Schedule A. (If you e-file, all of this will be done for you automatically.)