Whether it's car theft, a stolen wallet or a jewel heist, getting robbed can translate into tax savings. You can write off your losses from theft if you itemize deductions on Schedule A. Theft, in this context, includes armed robbery, burglary, fraud, blackmail, embezzlement, extortion and ransoming someone back from kidnappers.
If you can't find your diamond earrings or your wallet contains less money than you think you put in, the disappearance of your possessions doesn't justify a theft deduction. You have to prove to the IRS that the loss was definitely a theft, and that you owned what was taken. Whatever the cause of the loss, it's only deductible if it's illegal under state law. If someone scams you without breaking the law, for instance, you can't take a write-off.
Your loss is either the adjusted basis of the property -- usually equal to the purchase price -- or the loss of value due to the theft, whichever is smaller. If someone steals your $10,000 emerald necklace, that's a $10,000 loss. If they pry out enough emeralds that the necklace is worth only $8,000, you can only claim a $2,000 write-off. If your insurer reimburses you, or you expect him to do so soon, reduce your loss by the amount you get back.
You never get to write off 100 percent of your theft losses. First, subtract $100 from the theft. If the thief took multiple items in one robbery, you take off $100 from the total; if you report multiple thefts, it's $100 off each crime. Total up all your losses, then add in any deductible losses from disasters or accidents. Subtract 10 percent of your adjusted gross income from the total.
You claim your loss as a "miscellaneous 2 percent deduction" on Schedule A. Add the loss in with other deductions in this group -- unreimbursed employee expenses, for instance -- and then subtract 2 percent of your AGI. Whatever you have left is what you can write off. You also include Form 4684 with your return, and in some cases -- the loss of income-producing property, for instance -- the IRS wants to see Form 4797 too.
- Jupiterimages/Photos.com/Getty Images
- Explain Homeowners Insurance
- Can I Make a Claim to My Homeowner's Insurance if My Chimney Leaked and Caused Water Damage?
- If My Apartment Floods Does the Landlord Have to Offer Other Housing Options?
- Can Your Homeowners Insurance Company Cover a Stolen Vehicle From Your House?
- Offsetting Lottery Winnings With Casino Losses for Tax Purposes
- Can You Buy Back Stocks After Selling at a Loss?
- Can Short-Term Capital Loss Be a Tax Write-Off Against Ordinary Gains?
- What Expenses From a Natural Disaster Are Tax-Deductible?