Determining casualty vs. theft losses deductions
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.