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How to Claim Casualty & Theft Loss on Your Tax Return

How to Claim Casualty & Theft Loss on Your Tax Return

Property damage is never a good thing. In some cases, however, you can get some of your money back by taking a tax deduction. A tax deduction for disasters, casualties, and theft can cover damage caused by fire, accident, or natural disaster. However, you must specify that you are claiming this accidental damage deduction.

Learn more about claiming a deduction for casualty, disaster, and theft losses.


Do I have to itemize my tax deductions?

Standard deductions for the fiscal year 2021, the return you will file in 2022, are $25,100 for married taxpayers filing jointly, $12,550 for single taxpayers, and $18,800 for those filing as head of households. The total of your itemized deduction must exceed the amount applicable to your filing status to make your itemizing worthwhile.

If you wish to claim a loss resulting from an accident or theft, you must itemize the deductions. You cannot claim the standard deduction for your filing status and make an itemized deduction for your losses.

If the total of your deductions is less than your standard deduction, you should not itemize. This means that you will not be able to claim the casualty and theft loss deduction. However, you can deduct it without itemizing if you have an eligible loss.


Changes to Casualty Loss Deduction in 2018

The casualty and theft loss deduction has been used to cover a wide range of circumstances. This changed when the Tax Cuts and Jobs Act (TCJA) came into effect. Beginning in the fiscal year 2018, you can deduct losses from accidents and theft only if they are directly related to an event declared by the President of the United States to be a disaster.

The Tax Cuts and Jobs Act could expire at the end of 2025. The full deduction can then be reinstated.


Are theft losses eligible under the TCJA?

The Internal Revenue Service defines theft as the act of taking or disposing of property with the intent to deprive the owner of the property. The act must also be unlawful under state law. But, as with a casualty claim, to be qualified, the theft must have occurred due to a disaster area declared by the President. 

For example, suppose a hurricane hits your city, and the President declares it a disaster area. Then a thief enters the garage through a broken window during the storm and steals your car. The theft of your car was related to the disaster covered by the President's statement, so it could be argued that the theft is tax-deductible according to the TCJA.


Other ineligible losses include:

  • Decrease in the market value of the shares due to illegal or improper activities of the directors of the company issuing the shares.

  • Goods such as china, glass or furniture which have been broken under normal conditions.

  • Lost or mislaid objects

  • Progressive damage to property (such as trees, buildings, or clothing) caused by insects or disease

You can deduct certain losses from stocks that become completely worthless. These losses are treated as shares sold on the last day of the year.


Can I claim a loss on a bank deposit?

Some losses on a bank deposit may be charged against your taxes. You could claim an accidental loss if your deposit was made with a federally insured financial institution, such as a bank, credit union, or savings and loan association. However, the loss must be due to a federally declared disaster.

If your deposit was not federally insured, it is considered a joint loss. Before 2018, you may be able to claim it as an itemized miscellaneous deduction on your tax return. However, the Tax Cuts and Jobs Act stopped miscellaneous itemized deductions from 2018 to 2025.

If Congress allows the TCJA to expire in 2025, you can claim the usual deposit losses as an itemized deduction.


How is the Casualty Loss Deduction?

There are several steps to calculating the loss from a casualty or theft.

  • Start with the total loss for each theft or casualty.

  • Subtract any salvage value.

  • Subtract any insurance or other reimbursements.

  • Subtract $100.

  • Add the remaining amount of each loss or theft for the year.

  • Subtract 10% of your AGI (Adjusted Gross Income) from this total.

The final figure is the total loss due to casualty and theft that you can deduct for the year. If you have an eligible disaster loss, you do not have to itemize, and the net loss should not exceed 10% of the AGI. However, if you declare this type of disaster loss, any other casualty loss would be reduced by $500 instead of $100.

If your loss was fully covered by insurance, you would not be able to claim any of these costs.

For example, imagine an earthquake causing $25,000 in damage to your home; this earthquake is a federal disaster. Your insurance company covers $5,000 of damage. Then, a year after the earthquake, your $1,000 laptop was stolen.

No loss could be claimed for the laptop, as the theft was unrelated to the earthquake. But you can claim damages to your home.

To determine what you can claim on your taxes, you need to subtract the amount the insurance company reimbursed you from the total damages, then exclude $100 for the loss.

$25,000 - $5,000 - $100 = $19,900

The total casualty and theft loss of $19,900 would be reduced by 10% of the AGI. If the AGI is $30,000, you need to multiply that amount by 10% and subtract it from your total losses.

$19,900 - ($30,000 x 0.10) = $19,900 - $3,000 = $16,900

The total deduction you could claim would be $16,900.


Additional tax relief for disaster victims

The government normally grants additional tax relief to the victims of any particularly devastating disaster that occurs during the year. These events are known as qualified disasters.

In 2017, for example, victims of Hurricane Irma, Harvey, and Maria received tax leniency under the Disaster Tax Relief and Airport and Airways Extension Act of 2017 and the 10% Tax Exemption from AGI in the event of a disaster. They could claim the deductions for damages without having to itemize.

In 2022, the federal government extended several forms of exemptions for residents affected by qualifying disasters. For example, Colorado residents affected by fires and other conditions can claim disaster-related casualty losses for 2022 or a previous year. They can also deduct losses on personal property not covered by insurance.

Check with a tax expert if a disaster has occurred in your area to find out what help you may be eligible for.


How to Claim?

Casualty and theft losses are usually first reported and calculated on Form 4684. You can then enter the resulting number in Schedule A when you itemize, along with any other itemized deductions.


Summary

  • Accident and theft losses are reported and calculated on IRS Form 4684.

  • Claimed losses cannot exceed 10% of the AGI and just $100 from its value in addition to any insurance reimbursements.

  • Due to the TCJA of 2018, only losses directly related to a federally declared disaster can be claimed.

  • Losses due to disasters, casualties, and theft must be claimed as itemized deductions, except for losses related to qualified disasters.


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