How to Deduct Loss Due to Theft

If an act of theft results in total loss or damage to property you own, you may be eligible to deduct the value of your loss on your federal income tax return. The amount you can deduct is subject to certain factors, including the value of the property before and after the theft, and the reimbursement you receive from the insurance policy covering the stolen item. Individuals and businesses are eligible to claim losses as a result of theft.

Instructions

1. Obtain IRS Form 4684, Casualties and Thefts. Calculate your loss using Section A of Form 4684 if the property you lost as a result of the theft was personal property, and Section B if the stolen property was business property.

2. Write a description of the property on line 1 if you use Section A and line 22 if you use Section B.

3. Calculate your basis in the property. Your basis is the amount you paid to acquire the property that you lost. Include the purchase price, plus any additional expenses you incurred to take possession of the property. If you made improvements to the property that were necessary to maintain normal operation of the item or improve its value, include the costs of such expenses in your basis calculation. Record Section A basis on line 2 and Section B basis on line 23.

4. Calculate the amount of your insurance reimbursement for the loss. If the item that was stolen is covered under any insurance policy, you must calculate the insurance reimbursement even if you haven’t filed a claim or don’t plan on filing a claim. Subtract your deductible from the reimbursement amount and enter the result on line 3 if you use Section A, or line 24 if you use Section B.

5. Subtract the amount of your insurance reimbursement from your cost basis. The result is your gain as a result of the theft. Enter your gain on line 4 for Section A or line 25 for Section B. If your insurance reimbursement is more than your cost basis, do not record any amount on line 4 or line 25.

6. Determine the fair market value of the item before it was stolen. Fair market value is the amount some would pay for the item if you were to sell it. Fair market values for some items, such as cars, can be found on Internet value sites. You also can determine fair market value from similar items advertised for sale on Internet classified or auction sites. Enter the result on line 5 for Section A or line 26 for Section B.

7. Determine the fair market value of the item after it was stolen. After the item is returned to you, determine the amount a consumer would be willing to pay for it. If the item is returned in the same condition as it was in when it was stolen, the after-incident fair market value may not change from the value you calculate in Step 6. If you never recover the item, the after-incident fair market value is zero. Record your result on line 6 for Section A or line 27 for Section B.

8. Subtract the amount on line 6 from line 5 and record the result on line 7 if you use Section A. If you use Section B, subtract the amount on line 27 from line 26 and record the result on line 28.

9. Look at Form 4684. If you use Section A, enter the smaller of line 2 or line 7 on line 8. If you use Section B, enter the smaller of line 23 or 28 on line 29.

10. Subtract your insurance reimbursement amount from the amount shown on line 8 and enter the result on line 9 if you use Section A. If you use Section B, subtract your insurance reimbursement from the amount shown on line 29 and enter the result on line 30. If you use Section B, the amount shown on line 30 is your deductible theft loss. Enter the result on line 31.

11. Enter the amount shown on line 9 onto line 10 if you use Section A. If the amount shown on line 10 is less than $100, enter the amount on line 11. If the amount shown on line 10 is more than $100, enter $100 on line 11. Subtract the amount you enter on line 11 from the amount shown on line 10 and enter the result on line 12.

12. Calculate your gain or loss. If the amount shown on line 12 is more than the gain you calculate in Step 5, enter the difference on Form Schedule D, 1040. If the amount shown on line 12 is less than the gain you calculate in Step 5, you have a loss. Subtract the amount on line 12 from the amount shown on line 4 and enter the result on line 16.

13. Find your adjusted gross income on Form 1040, line 38. Multiply your adjusted gross income by 0.10 and enter the result on Form 4684, line19. You must complete your Form 1040 income tax return through this line to report your theft loss if the loss is related to personal property. Subtract the amount shown on Form 4684, line 19 from the amount shown on line 16. Enter the result on lines 20 and 21. Record the amount shown on Form 4684, line 21 onto Form 1040 Schedule A, line 20.

14. Complete the Part 2 summary section of Form 4684. This section must be completed regardless of whether you use Section A or Section B to claim your loss. Attach Form 4684 to Form 1040 if your loss is due to theft of personal property. Attach Form 4684 to your business income tax return (Form 1065, 1120 or 1120-S) if your loss is due to theft of business property.

References

• IRS: Tax Topic 515 - Casualty, Disaster and Theft Losses (Including Federally Declared Disaster Areas)
• IRS: Instructions for Form 4684
• IRS: Form 4684 (PDF)