Theft Loss

Today TaxMama hears from James in Delaware, with this problem. “We were robbed in January and the cost of items stolen well exceeded the insurance companies total reimbursement of (10%). Can we claim any of the non covered loss in the 2009 tax year and how?”

TaxMama answers a question on Tax

Dear James,

That must have been a terrible experience!

And naturally, policies have deductibles. Unfortunately, so has IRS.

Before you can take a deduction for casualty loss (thefts are included), you have to reduce the total loss by two factors:

1) 10% of your adjusted gross income (AGI), which is the last line on page 1 of your Form 1040.

2) Plus an additional $100.

In the EA class this week, one of my students asked, why the $100? Who knows. Ask your legislators why they dream up this nonsense!

Let me give you an example of how this works. Suppose your insurance company didn’t reimburse you for $5,000. Let’s say you are a couple, both working. Your combined wages are $60,000 and you have no other income or adjustment. 10% of AGI is $6,000. So you would have to reduce your theft loss by $6,100 before you could deduct a single penny. So if the loss is only $5,000, there’s no point in going through the exercise.

Here are some resources to help you (Look for working links in the Resource Box below):

IRS Publication 547 can explain all the details. http://www.irs.gov/publications/p547/index.html

IRS Publication 584 is a workbook you can use for personal losses http://www.irs.gov/pub/irs-pdf/p584.pdf

Use Section A of Form 4684 to report the losses. http://www.irs.gov/pub/irs-pdf/f4684.pdf

Incidentally, if the theft loss had been for business items, there are no limitations on business losses. Those are reported on Section B of the Form 4684. I do hope this helps.
And remember, you can find answers to all kinds of questions about casualty losses and other tax issues, free. Where? Where else? At TaxMama.com.

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