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Taking a Tax Deduction for a Casualty or Theft 
by kmhagen July 05, 2005

How To Deduct a Casualty or Theft Loss

Forms to File

When you have a casualty or theft loss, you will need to file Form 4684, Casualties and Thefts, and then transfer the result to Schedule A, to report the loss as an itemized deduction.  You may need to file Form 4797 if business property has been affected by the casualty or theft.

For a loss on deposits, you have three different ways to take the deduction:

  • As a casualty loss reported on Form 4684 and then on Schedule A as an itemized deduction.
  • As an ordinary loss, reported as a miscellaneous itemized deduction on Schedule A.  The maximum amount you can claim is $20,000 ($10,000 if married filing separately), less any proceeds from state insurance on deposits,  If the deposit is federally insured, you cannot claim the loss as an ordinary loss.  Miscellaneous itemized deductions are subject to the 2% of adjusted gross income limit.
  • As a non-business bad debt, on Schedule D.  If you choose this option, you will have to wait until the actual loss is determined and deduct the loss as a bad debt in that year.

Proof of the Loss

In order to deduct a casualty or theft loss, you will need to be able to show that the casualty or theft occurred, that your loss was a result of the casualty or theft, and that you were the owner of the property.  For a casualty loss,  if you are leasing the property, you will need to show that you are contractually liable for the damage. You will also need records of your cost or other basis in the property, and records of insurance claims filed, and the amount of reimbursement received or expected to be received.

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