Theft Victims Are Entitled to Certain Tax Deductions
When someone has been the victim of theft, they usually experience a range of emotions, including shock, betrayal, and anger. Depending on the nature of the crime, the victim may have to spend long hours working with law enforcement, insurers, and appraisers in hopes of receiving compensation for their loss.
When theft victims are unable to recover their property or its value, it may be possible to claim these losses as tax deductions. While the deduction can never compensate for the sense of violation that crime victims feel, nor will it replace an item of sentimental value, the tax benefit can offer some much-needed relief.
The tax code places some restrictions on claiming such losses as a tax deduction. These include:
No Prospect of Recovery
Victims must take “reasonable steps” to get their property back. The deduction can be taken when a thorough review of the case facts and circumstances show there is no real prospect for recovering the stolen items.
Timely Claim Filing
Victims must deduct losses in the year of the theft or the year when the victim becomes reasonably certain that the funds or property won’t be recovered.
Victims must be able to provide documentation of the financial loss. This could mean receipts from the purchase of the stolen item, documentation of losses caused by investment fraud, or a credible appraisal.
Deduction of Actual Loss
A victim cannot deduct the full value of the loss if the victim has already received some form of compensation, such as through an insurance claim.
Because tax deductions are a complicated issue, individuals seeking to deduct a theft loss from their taxes may wish to consult with a tax professional in San Diego. Doing so can help ensure that the deduction is proper and will not raise any red flags with the IRS.
For help during tax time or to find representation when facing IRS appeals court, reach out to R.A. Michael and Associates. We’ve been helping taxpayers resolve IRS issues since 1987 and can help you too. Call (844) 780-1100 today and schedule your free consultation.