For years 2018-2025, business casualty and theft losses are deductible, but only personal casualty losses within federally declared disaster areas are deductible. The personal-use property limitations don’t apply to losses from Ponzi-type schemes. With the increase in natural disasters that occurred in recent history, many of your clients will be looking to deduct losses that will not be reimbursed by insurance.
Below, you’ll find a few of the top questions from the webinar and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: How do you classify a theft as a Ponzi scheme?
A: The arrangement must be a “specified fraudulent arrangement” (SFA) as defined by the Securities and Exchange Commission. The lead figure must be charged or indicted and they either confess or have their accounts frozen by an appointed trustee.
Q: Bitcoin was stolen and reported to the FBI and the police. Is this deductible even though it’s personal?
A: If the client is a Bitcoin miner who validates blocks and is in the business of dealing with Bitcoin, then yes. Business thefts are still deductible. If it is a personal investment theft loss, then no, unless it’s somehow associated with a federally declared disaster.
Q: How is the non-depreciable basis of the land treated?
A: Generally, if a single casualty involves more than one item of property, such as the house structure and the land and landscaping, figure the loss on each item separately.
Q: If the insurance money is used to replace the lost property, does that lessen the recognized gain?
A: You do not have a casualty or theft loss to the extend you are reimbursed, so the insurance payment lessens the loss.
To learn more about casualty losses, identifying the year a casualty loss may be claimed and how to prepare Form 4684, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to join our completely free 30-day trial, visit natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.