Can Stolen Cash Be a Deduction on Tax Returns?

by Susan Kerr
Deduct those theft losses.

If it is tax time and someone stole money from you last year, you can deduct the amount of the stolen cash on your federal income tax return. Of course, the Internal Revenue Service will want documentation that proves your claim. You are not allowed to deduct it if you lost or misplaced the cash.

Common Scenarios

You can deduct the loss if someone burglarized your room and took money without your consent. If someone took the cash from a lost wallet or purse, or if she picked your pocket and stole the money, you can claim the deduction. Likewise, you can deduct the loss if you are the victim of a mugging or robbery and your money is taken. A police report will bolster your claim.

Rare Examples

According to the IRS, you are allowed to deduct a cash loss if you paid someone blackmail or a kidnapping ransom. You can deduct a loss if you order an item on the Internet, do not receive it and cannot get your money back from the seller. Unauthorized withdrawals from your bank account may also be deductible if you are unlikely to recover the funds.

Nondeductible Losses

You cannot deduct a cash loss if, for example, you hid some money in a can in the backyard and are unable to find it again. If you have invested money in a certain stock and its price dropped because of corporate misdeeds, such as bad accounting, you cannot claim it as a cash loss on your taxes, but you may be able to claim it as a capital loss if you itemize your tax return.

Proof Positive

The IRS will not take your word that the cash was stolen; it wants some proof. You must have a good idea of when the theft happened and written evidence that the theft was reported. A police report is ideal, but the IRS will accept any reasonable form of proof. You also have to demonstrate that you had the cash and it belonged to you legally. You cannot expect to recover the money at some future time. If your friend or roommate owes you money, for example, you cannot write off the debt as theft.

About the Author

Susan Kerr began her writing career as a food columnist in 1987 before moving to business journalism as a reporter and managing editor in the Penn State area. Since then, Kerr has contributed content to military-related magazines, not-for-profit websites and other online media. In addition, she writes a weekly column for her hometown newspaper

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