Can I take a theft loss on this stolen property?

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Q. If a bank agrees to pay me a settlement for lost property from a safe deposit box, is it taxable to me? The settlement amount is less than the value of the stolen property.
— Theft victim

A. Because of changes in the tax law, we don’t have good news for you.

What you have described would probably be considered a theft loss.

A loss from theft is the taking and removing of money or property with the intent to deprive the owner of it, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

He said the taking of property must be illegal under the law of the state where it occurred and done with criminal intent.

“The Tax Cuts and Jobs Act eliminated the allowable deduction for any personal theft loss unless attributable to a federally declared disaster,” Becourtney said. “Prior to 2018, a personal theft loss was deductible to the extent it exceeded 10 percent of adjusted gross income, plus a $100 floor.”

A business casualty loss, on the other hand, remains fully deductible, he said.

You note that the settlement amount is less than the value of the stolen property. But for purposes of computing a gain or loss, the cost of the property is considered as opposed to the value, he said.

“If the settlement amount exceeds the property cost, then a taxable gain will result,” he said. “If the assets involved were capital assets then capital gain treatment will apply – preferential federal tax rates if a long-term capital gain, and the ability to offset the gain against capital losses.”

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This story was originally published on May 30, 2019.

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