Getting robbed can be costly, even if you are insured. In many cases, you can deduct some of your losses from your federal taxable income. The Internal Revenue Service defines robbery broadly to include burglary, blackmail, extortion, embezzlement, kidnapping for ransom, fraud, misrepresentation and even pyramid schemes -- if the act was illegal in your jurisdiction.
You may deduct theft losses for items stolen from your home and your vehicles. Although the theft must have been done with criminal intent, the thief doesn't have to be caught for you to claim your losses. If your losses were covered by insurance, you must file a timely insurance claim.
Two methods are available for calculating the amount of your loss -- the adjusted basis method and the fair market value method. After figuring the amount of your loss using both of these methods, you must choose the smaller of the two figures to continue calculating the amount of your loss. The adjusted basis of your property is generally the amount you paid for it, plus the cost of any improvements and minus any depreciation. The fair market value of the property is equal to the amount an item in similar condition could be sold for on the open market -- the book value of a car, for example. To determine the amount of your loss, you must subtract the value of any insurance proceeds from the value of the property you lost. You don't have to subtract the amount of any deductible you paid.
You cannot deduct all of your theft losses. If you lost personal use property -- property that was not income-producing and was not used in business -- you must reduce the amount of your deduction by $100 for each item lost. After that, you must reduce your total loss by 10 percent of your adjusted gross income. Your deduction is equal to the remainder, if any. If the property you lost was used in your service as an employee, add job expenses, such as work-related mileage expenses, and certain miscellaneous itemized deductions to the amount of your loss, and then subtract 2 percent of your adjusted gross income.
Filing and Documentation
You must itemize your deductions to deduct your theft losses, and you must complete Schedule A of Form 1040. You must also complete Form 4684. Although you don't need to submit supporting documentation to the IRS, to prepare for a possible audit you should document your ownership of the property, the fact that a theft occurred and the amount of your loss -- the book value of a stolen car, for example.
- Internal Revenue Service: Casualties, Disasters and Thefts
- Internal Revenue Service: Topic 515 -- Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)
- Internal Revenue Service: Theft Losses From Investments in “Ponzi” Schemes: Tax Treatment of Distributions Received From a Trustee/Receiver
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.