Today TaxMama hears from Louis in South Carolina who says, “I lost $30,000 in an ‘’Investment Pool’’ that turned out to be a Ponzi scheme (see link in Resource Box below). The perpetrator was convicted at the end of 2007. How do I claim this loss on my taxes for 2007?”
And you live in the perfect place for such schemes, too – Folly Beach?
Aaaah. Well, the good news is, this certainly seems to qualify for theft loss treatment.
Report this as a casualty loss on Form 4684. Get proof of his conviction to back up your claim that this was theft.
You will be able to deduct the entire $30,000 as an ordinary loss, subject to the limits on personal losses. The deduction will not be limited to the $3,000 per year that capital losses face.
And read IRS’s annoyed response to the article – Notice 2004-27 – Loss Deductions for Diminution in Value of Stock Attributable to Corporate Misconduct.
The very bottom of IRS’s notice covers what happened to you.
Sorry you had a bad investment experience. But you’re about to have a good tax experience!
And remember, you can find answers to all kinds of questions about stock theft losses and taxes and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- MarketWatch – TaxWatch Column :: Stock Theft Losses
- IRS Notice 2004-27 :: Loss Deductions for Diminution in Value of Stock Attributable to Corporate Misconduct
- Wikipedia Entry :: Ponzi Scheme – the history