RSN™ Guide: Deducting Scams Form Your U.S. Income Tax

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RSN™ Guide: Deducting Scams Form Your U.S. Income Tax

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RSN™ Guide: Deducting Scams Form Your U.S.

The following is not intended as Tax Advice and is provided for educational purposes only. Consult a professional tax preparer or tax attorney for all legal or professional advice about your taxes.

Is It Possible To Recover Some Of Your Money Through Your Taxes? Maybe!

You can legally claim casualty and losses on personal property as itemized deductions on a United States Tax Return.

According to H&R Block you would do this on Form 4684 – Theft and Casualty Losses »

How To Do It?

You can claim casualty and theft losses on personal property as itemized deductions. Use Form 4684 to figure your losses and report them on Form 1040Schedule A.

You can only deduct losses not reimbursed or reimbursable by insurance or other means. You’ll need to subtract $100 from each of personal property. The total of your casualty and theft losses on personal property must be more than 10% of your adjusted gross income (AGI). Otherwise, you can’t claim a deduction for that portion of the loss above the limit.

What’s a casualty?

A casualty is damage, destruction, or property loss resulting from one of these identifiable events:

  • Sudden event — swift, rather than gradual or progressive
  • Unexpected event — ordinarily unanticipated and unintended
  • Unusual event — not a day-to-day occurrence

Deductible losses

Deductible casualty losses can result from events like:

  • Car accidents (See Nondeductible losses below for exceptions.)
  • Earthquakes
  • Fires (See Nondeductible losses below for exceptions.)
  • Floods
  • Government-ordered demolition or relocation of a home that’s unsafe to use because of a disaster. A disaster is an event that occurred in an area the president declares eligible for federal assistance.
  • Mine cave-ins
  • Shipwrecks
  • Sonic booms
  • Storms, like hurricanes and tornadoes
  • Terrorist attacks
  • Vandalism
  • Volcanic eruptions
  • Loss on deposits when a bank or other financial institution becomes insolvent or bankrupt. If you incurred this type of loss, you can deduct it as one of these:
    • Casualty loss
    • Ordinary loss
    • Nonbusiness bad debt

However, after you make the choice, you can’t change it without permission from the . To learn more, see Publication 547: Casualties, Disasters and Thefts at www.irs.gov.

Nondeductible losses

You can’t deduct a casualty loss if the damage or destruction is caused by any of these:

  • Accidentally breaking items, like glassware or china, under normal conditions
  • Damage a family pet does, unless the casualty requirements are met. Ex: Your new puppy, who’s not housebroken, damaged your antique Oriental rug. Since the damage isn’t unexpected or unusual, you can’t deduct the loss.
  • Fire you willfully set or you paid someone else to set
  • Car accident if your willful negligence or willful act caused it. The same is true if someone acting for you caused the accident.
  • Progressive deterioration if the damage results from a steadily operating cause or a normal process, like:
    • Steady weakening of a building due to normal wind and weather conditions
    • Deterioration and damage to a water heater that bursts. However, the damage to rugs and drapes caused by the bursting of a water heater qualifies as a casualty.
  • Most losses of property caused by droughts. To deduct it, you must have incurred a drought-related loss in one of these:
    • Trade or business, like farming
    • Transaction entered into for profit
  • Termite or moth damage
  • Damage or destruction of trees, shrubs, or other plants by:
    • Fungus
    • Disease
    • Insects, worms, or similar pests. However, a sudden destruction due to an unexpected or unusual insect infestation might result in a casualty loss.

Failure to file an insurance claim for reimbursement

If your property is covered by insurance, you must file a timely insurance claim for your loss. Otherwise, you can’t deduct the loss as a casualty or theft. However, the portion of the loss not covered by insurance, like a deductible, isn’t subject to this rule. To learn more, see Publication 547: Casualties, Disasters, and Thefts at www.irs.gov.

What’s a theft?

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be:

  • Illegal under the law of the state where it occurred
  • Done with criminal intent

Theft includes the taking of money or property by:

  • Blackmail
  • Burglary
  • Embezzlement
  • Extortion
  • Kidnapping for ransom
  • Larceny
  • Robbery
  • Fraud or misrepresentation

Figuring and proving a loss

To figure your deduction for a casualty or theft loss, first figure the amount of your loss. Then:

  1. Figure your adjusted basis in the property before the casualty or theft.
  2. Figure the decrease in fair market value (FMV) of the property resulting from the casualty or theft.
  3. From the smaller of the amounts in steps 1 and 2, subtract insurance or other reimbursement you received or expect to receive.

You should prove a casualty caused your loss. So, keep newspaper accounts and other proof showing the type of casualty that struck your area and the amount of damage it did.

To prove the amount of your loss, you should have:

  • Purchase receipts for the affected property
  • Receipts for improvements made to the affected property
  • Pre- and post-casualty appraisals for the affected property

To learn more, see Publication 547: Casualties, Disasters, and Thefts at www.irs.gov.

Deducting a loss in a presidentially declared disaster area

If your loss is part of a presidentially declared disaster, you can deduct the loss on your prior-year return. If you’ve already filed your prior-year return, you can file an amended return to claim the deduction.

Claiming a qualifying disaster loss on your prior-year return:

  • Could result in a lower tax for that year
  • Often produces or increases a cash refund
  • Might let you get your money months earlier than if you wait to claim your loss on your current-year return

Casualty or theft gain

It’s possible to have taxable gain after a casualty or theft. You have a gain if you receive an insurance payment or other reimbursement that’s more than your adjusted basis in property that’s:

  • Destroyed
  • Damaged
  • Stolen

To find your gain, subtract the adjusted basis of the property at the time of the incident from the amount you receive. It doesn’t matter if the decrease in the fair market value (FMV) of your property is less than the adjusted basis of your property. No matter what, you must use the adjusted basis to figure the gain.

Amount you receive

The amount you receive includes the total of:

  • Insurance payment
  • Value of property you received minus expenses you incurred while pursuing reimbursement
  • Reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property

Reporting a gain

Usually, you must report your gain as income in the year you receive the reimbursement. However, you don’t have to report your gain if you:

  • Meet certain requirements
  • Postpone reporting the gain by buying replacement property

To learn more, see the Postponement of

Gain chapter in Publication 547: Casualties, Disasters, and Thefts at www.irs.gov.

Casualty or theft of business or income-producing property

You might suffer a casualty or theft loss to property used in a business, like a vehicle or rental property. If so:

  • You don’t have to reduce the loss amount by the $100 reduction.
  • The 10% of AGI rules don’t apply.

To figure the loss amount, subtract these items from the property’s adjusted basis:

  • Salvage value
  • Insurance proceeds or other reimbursement

You’ll take the loss on Form 4684, Part II.

Please Note: You will have to explore this with a tax professional to determine if you qualify for a deduction or other tax benefit (such as a credit). Also, if you received money or property from a scammer, be sure you reported it to the police and turned it over to them to avoid possible tax implications.

The foregoing is not intended as Tax Advice and is provided for educational purposes only. Consult a professional tax preparer or tax attorney for all legal or professional advice about your taxes. Please discuss this with H&R Block or other tax professionals – be sure you do not believe urban legends that you may read online – always seek competent advice.

Society of Citizens Against Romance Scams


RSN Team

a division of SCARS
Miami Florida U.S.A.

 

 

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FAQ: How Do You Properly Report Scammers?

It is essential that law enforcement knows about scams & scammers, even though there is nothing (in most cases) that they can do.

Always report scams involving money lost or where you received money to:

  1. Local Police – ask them to take an “informational” police report – say you need it for your insurance
  2. Your National Police or FBI (www.IC3.gov)
  3. The Scars Worldwide Reporting Network HERE or on www.Anyscam.com

This helps your government understand the problem, and allows law enforcement to add scammers on watch lists worldwide.

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RomanceScamsNow.com™ is the official News Magazine of the Society of Citizens Against Romance Scams™ [SCARS]™ It is edited and published by the RSN Team, a division of SCARS. SCARS is the world's leading anti-scam organization, based in Miami Florida & Cincinnati Ohio U.S.A. Its founder has been involved in combating online fraud since 1991. SCARS™ - the Society of Citizens Against Romance Scams is a non-profit non-governmental organization (NGO) dedicated to advocating victim's causes and changing government and law enforcement attitudes toward online fraud for good! Please join us in becoming a member of SCARS - it's free! Add your voice so that the world will listen at last - just go to www.AgainstRomanceScams.org. The RSN website and all of our publications (including social media) are maintained by our own staff employees and volunteers to provide you the most up to date information about scams & scammers from around the world. We show you how to avoid them or recover from them. SCARS is the only registered online crime victims' assistance & support organization in the world. Be sure to report scammers here. Also, visit our main Facebook page for more information about romance scams.
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2 Comments

  1. James December 4, 2018 at 9:49 pm - Reply

    I had a pop up today about Aria Geovanni . Could you help me with this ?

    • Romance Scams Now Editorial Team December 4, 2018 at 11:19 pm - Reply

      Help in what way? It is not complicated. Basic common sense takes care of it. It is a scammer. If you have not lost money then just block them, and stop talking to strangers online. If you did lose money then report them properly through the local police, FBI, and Anyscam.com or here.

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