If someone steals cash from you, this can indeed qualify for a tax deduction – at least through tax year 2017. Although deducting the loss of cash is permissible, the process can be quite tricky and it might not be worth your while to claim this tax relief for petty theft. However, if you decide to do so, you must follow a number of rules that have been implemented beginning with 2018 tax returns.
For tax years up to and including 2017, stolen cash could be deducted on tax returns if certain criteria are met. However, beginning with the 2018 tax year, this tax relief has been largely eliminated except for specific scenarios as outlined in the Tax Cut and Jobs Act.
Tax Rules Regarding Theft Losses
Unfortunately, if you have $1,000 in cash stolen from your wallet, this doesn’t mean you'll get a $1,000 tax deduction. First, you must subtract $100 from that amount, plus another $100 for any additional casualty or theft losses. Your next step is to total all your losses after these $100 deductions, assuming you’ve also fallen victim to other thefts or casualty events, such as a tornado tossing your automobile to parts unknown. Now subtract 10 percent of your adjusted gross income from the total – this is the amount of the casualty and theft deduction you’re entitled to. You can find your AGI on line 37 of your Form 1040 tax return.
If you only have that one theft for $900 after the $100 deduction, and if your AGI is $40,000, you’re out of luck. You must subtract 10 percent or $4,000 from the $900, leaving you with a negative balance, so you’d have no tax deduction. But if you add in the car you lost in that tornado that might have been worth $9,900 after subtracting the $100 deductible, you get a tax deduction of $6,800: $900 for the cash, plus $9,900 equals $10,800, less $4,000 or 10 percent of your $40,000 AGI.
If You’re Insured for the Loss
Assuming that you have an insurance policy that’s going to kick in and reimburse you for your loss or even a portion of it, you have to subtract this amount from your potential tax deduction, too. Some homeowners and renters insurance policies cover thefts to some degree. This can be an “anticipated” reimbursement – you don’t actually have to have the money in hand at the time you file your tax return. And no, you can’t just decline to file an insurance claim so you can take the tax deduction. If you have insurance, you’re required to seek reimbursement for the loss.
Can I Claim a Theft Loss on My Taxes?
If you do end up with a theft loss after all this subtracting and deducting, you must itemize your deductions on your tax return, rather than claim the standard deduction for your filing status if you want to claim it. This is only beneficial if all your itemized deductions add up to more than the standard deduction you’re entitled to. Your theft loss will also require that you complete and file IRS Form 4684 showing how you made all the necessary deductions from the amount of your loss.
Changes in Tax Year 2018
You can only claim this tax deduction if the theft occurred in the 2017 tax year. The Tax Cut and Jobs Act goes into effect for tax years 2018 through 2025 and it pretty much eliminates this deduction for many taxpayers. You can still claim a casualty loss for property under the terms of the TCJA, but only if it’s destroyed in an event that’s been declared a disaster by the president. This leaves you out if someone swipes your cash. The TCJA also nearly doubles standard deductions, so you’d need a lot of itemized deductions to top these amounts.
- IRS: Topic Number 515 – Casualty, Disaster, and Theft Losses
- H&R Block Tax Information Center: Theft and Casualty Losses
- Journal of Accountancy: What the Tax Reform Bill Means for Individuals
- SC&H Group: 2018 Tax Roadmap
- IRS: Form 1040
- Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed Nov. 6, 2020.
- Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2021." Accessed Nov. 6, 2020.
- Internal Revenue Service. "2019 Instructions for Form 4684: Casualties and Thefts," Page 1. Accessed Nov. 6, 2020.
- Internal Revenue Service. "2017 Publication 547: Casualties, Disasters, and Thefts," Page 4. Accessed Nov. 6, 2020.
- Internal Revenue Service. "Tax Reform Affects If and How Taxpayers Itemize Their Deductions." Accessed Nov. 6, 2020.
- Internal Revenue Service. "Topic No. 515 Casualty, Disaster, and Theft Losses." Accessed Nov. 6, 2020.
- Congress. "H.R.3823 - Disaster Tax Relief and Airport and Airway Extension Act of 2017." Accessed Nov. 6, 2020.
- Congress. "H.R.1892 - Bipartisan Budget Act of 2018." Accessed Nov. 6, 2020.
- Internal Revenue Service. "Tax Relief in Disaster Situations," Select "Recent Tax Relief: 2020." Accessed Nov. 6, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.