16 Oct I was scammed. Can I take a theft loss?

Q. I lost $5,000 to a contractor who basically didn’t do all the work he was supposed to do. Can I take some kind of a loss on my tax return?
— Homeowner

A. There was a time when losses of property due to theft were tax deductible.

Not anymore.

The tax law only allows deductions for personal casualty losses if the losses are attributable to a national disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, said Chadderdon O’Brien, a certified financial planner with RegentAtlantic in Morristown.

This means that theft in your situation would no longer be deductible.

While not applicable to your situation, one can still claim a tax deductible loss if it is from a declared national disaster.

Of course, there are some caveats.

Only uninsured losses are deductible, O’Brien said, which means you cannot collect money from an insurance policy and claim the loss on your tax return.

“A casualty loss deduction is a personal itemized deduction claimed on Schedule A,” O’Brien said. “Such losses are deductible only if, and to the extent, they exceed 10 percent of your adjusted gross income (AGI).”

Of course, you also must be itemizing your deductions, rather than using the standard deduction, to take the loss.

To take the loss, first, determine the value of the items destroyed. Subtract any salvage value and any insurance reimbursement from the loss amount, O’Brien said.

Next, subtract $100 from each casualty event.

“Then, take that amount and subtract 10 percent of your AGI,” O’Brien said. “This is the deductible amount that goes on your Schedule A Itemized Deductions. If the number is zero or negative, unfortunately you are not entitled to a tax deduction for the loss.”

As always, please consult with a tax professional so they can evaluate your specific tax situation.

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