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Deducting Financial Losses Of Scams From Your U.S. Income Tax

A SCARS Guide

A Legacy Post from our Archives

PLEASE NOTE: THIS WAS ORIGINALLY POSTED PRIOR TO 2018

THIS INFORMATION IS NOT LONGER VALID FOR TAX YEARS 2018 THROUGH 2025 – THOUGH IT MIGHT BECOME VALID AGAIN DEPENDING ON THE U.S. CONGRESS.

FOR NOW PLEASE DISREGARD THIS INFORMATION EXCEPT IF YOU WERE THE VICTIM OF A SCAM PRIOR TO 2018

2018 UPDATE – PLEASE NOTE – Per the IRS: For tax years 2018 through 2025, the Act has suspended the itemized deduction for personal casualty and theft losses. Prior to this change in the law, personal casualty or theft losses were only deductible to the extent they exceeded $100 per casualty or theft event. However, if your loss occurred in 2017 or before you may be able to go back and Amend your tax returns – speak to a professional tax preparer for details.

IF YOU WERE A VICTIM PRIOR TO 2018 YOU MAY HAVE AN OPTION TO REFILE AND INCLUDE YOUR LOSSES. SEE A TAX PROFESSIONAL TO KNOW FOR SURE.

Deducting Financial Losses Of Scams From Your U.S. Income Tax

NOTE THIS ONLY APPLIES TO LOSSES BEFORE 2018

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 theft 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 casualty loss 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 IRS. 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.

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Visit reporting.AgainstScams.org to learn more!

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  1. Deducting Financial Losses Of Scams From Your U.S. Income Tax 2
    James December 4, 2018 at 9:49 pm - Reply

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

    • Deducting Financial Losses Of Scams From Your U.S. Income Tax 3
      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.

Your comments help the SCARS Institute better understand all scam victim/survivor experiences and improve our services and processes. Thank you


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Important Information for New Scam Victims

If you are looking for local trauma counselors please visit counseling.AgainstScams.org or join SCARS for our counseling/therapy benefit: membership.AgainstScams.org

If you need to speak with someone now, you can dial 988 or find phone numbers for crisis hotlines all around the world here: www.opencounseling.com/suicide-hotlines

A Note About Labeling!

We often use the term ‘scam victim’ in our articles, but this is a convenience to help those searching for information in search engines like Google. It is just a convenience and has no deeper meaning. If you have come through such an experience, YOU are a Survivor! It was not your fault. You are not alone! Axios!

A Question of Trust

At the SCARS Institute, we invite you to do your own research on the topics we speak about and publish, Our team investigates the subject being discussed, especially when it comes to understanding the scam victims-survivors experience. You can do Google searches but in many cases, you will have to wade through scientific papers and studies. However, remember that biases and perspectives matter and influence the outcome. Regardless, we encourage you to explore these topics as thoroughly as you can for your own awareness.

Statement About Victim Blaming

Some of our articles discuss various aspects of victims. This is both about better understanding victims (the science of victimology) and their behaviors and psychology. This helps us to educate victims/survivors about why these crimes happened and to not blame themselves, better develop recovery programs, and to help victims avoid scams in the future. At times this may sound like blaming the victim, but it does not blame scam victims, we are simply explaining the hows and whys of the experience victims have.

These articles, about the Psychology of Scams or Victim Psychology – meaning that all humans have psychological or cognitive characteristics in common that can either be exploited or work against us – help us all to understand the unique challenges victims face before, during, and after scams, fraud, or cybercrimes. These sometimes talk about some of the vulnerabilities the scammers exploit. Victims rarely have control of them or are even aware of them, until something like a scam happens and then they can learn how their mind works and how to overcome these mechanisms.

Articles like these help victims and others understand these processes and how to help prevent them from being exploited again or to help them recover more easily by understanding their post-scam behaviors. Learn more about the Psychology of Scams at www.ScamPsychology.org

Psychology Disclaimer:

All articles about psychology and the human brain on this website are for information & education only

The information provided in this article is intended for educational and self-help purposes only and should not be construed as a substitute for professional therapy or counseling.

While any self-help techniques outlined herein may be beneficial for scam victims seeking to recover from their experience and move towards recovery, it is important to consult with a qualified mental health professional before initiating any course of action. Each individual’s experience and needs are unique, and what works for one person may not be suitable for another.

Additionally, any approach may not be appropriate for individuals with certain pre-existing mental health conditions or trauma histories. It is advisable to seek guidance from a licensed therapist or counselor who can provide personalized support, guidance, and treatment tailored to your specific needs.

If you are experiencing significant distress or emotional difficulties related to a scam or other traumatic event, please consult your doctor or mental health provider for appropriate care and support.

Also read our SCARS Institute Statement about Professional Care for Scam Victims – click here to go to our ScamsNOW.com website.

If you are in crisis, feeling desperate, or in despair please call 988 or your local crisis hotline.