FDIC Limits

Today TaxMama hears from Bud in Tennessee who tells us: “My wife had a CD in an online bank that exceeded the FDIC guaranteed amount. The Internet bank went into receivership and my wife lost the amount that exceeded the FDIC limit. What are the tax implications as far as the loss and what schedules need to be filed for this loss?”

Dear Bud,

That is such a shame.

But you’re going to be a warning to others to keep an eye on their accounts to prevent their accounts from exceeding FDIC limits. So thanks for bringing this to our attention.

How can folks avoid having more than $100,000 in any one bank or credit union with a risk of loss? If you have that much money, get really familiar with the FDIC rules and NCUA rules.

Either open accounts in several banks so they are all under the $100,000 limit, or open accounts in the names of different family members, or as joint accounts. Each account will be separately insured. Note: If you put $100,000 into a CD or an account and it earns interest – you will lose the interest when the bank folds. So, deposit only $95,000 if the interest rate is 5%. And take out the interest each year. Or check with your insurance broker to see if you can get your own insurance to cover the failure of financial institutions. Or see if your financial institution carries additional insurance to cover their depositors. Then you won’t have to play Mickey Mouse games with your accounts.

Additional insurance for banks.
Excess share insurance for Credit Unions.

Meanwhile, what can you do with the loss?

1) Get a copy of the paperwork showing how much was lost. Put a copy into the tax file for 2007, and keep it with your files until at least 6 years have passed.

2) Report it on Schedule D.


Your cost is the full amount of the CD. Your sale price is the amount your wife received instead of the full amount.

That’s the easy part.

The bad news is, that if she lost more than $3,000, you may have to spread that loss out over several years.

The loss can be deducted against other capital gains you might have – plus $3,000 for each year. Chapter 16 of IRS Publication 17 explains how to report gains and losses .

So, if it’s a large loss, this may be a good time sell some stocks that have appreciated. You’ll be able to sell them without paying any taxes on the gains.

And remember, you can find answers to all kinds of questions about capital losses, and other tax issues, free. Where? Where else? At TaxMama.com

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