Stolen property isn’t tax-deductible in most cases

Did you have a laptop or car stolen last year? Here’s why it’s very unlikely you’ll be able to claim that as a loss on your federal tax return.

Vehicle theft has been on the rise since the summer of 2020 and continues to trend upward.

There were 29% more reported vehicle thefts in 2023 than than in 2022, according to the Council on Criminal Justice.

We recently VERIFIED that the Internal Revenue Service (IRS) requires thieves to report the property they steal on their income tax returns.

But what happens if someone steals something from you, like your car or a laptop? A VERIFY reader on X, formerly known as Twitter, wanted to know if they can deduct stolen property on their federal tax return.

THE QUESTION

If you are a victim of theft, can you deduct the value of stolen property on your federal tax return?

THE SOURCES

THE ANSWER

No, victims of theft are not able to deduct the value of any stolen property on their federal tax returns in nearly all cases. There are limited exceptions for victims of theft during a federally declared disaster and victims of Ponzi schemes.

WHAT WE FOUND

The Tax Cuts and Jobs Act, which became law in 2017, doubled the standard deduction, but eliminated or restricted many itemized deductions, the Urban-Brookings Tax Policy Center says. Itemized deductions can reduce a person’s taxable income in some cases.

One of the changes under the law significantly curtailed itemized deductions for personal casualty and theft losses. That change means most people cannot claim theft losses, including those for stolen property or money, on their 2023 federal tax returns.

Before the passage of the Tax Cuts and Jobs Act, people could “claim itemized deductions for personal casualty losses that were not compensated by insurance,” including losses from theft, storms, fire or other incidents, Cherry Bekaert, an account firm, explains.

Since tax year 2018, taxpayers can only deduct those losses if they’re attributable to a federally declared disaster and not covered by insurance, the IRS and Mark Steber, chief tax information officer at Jackson Hewitt, say.

Some states, like New York, opted not to follow some of the itemized deduction changes under the Tax Cuts and Jobs Act. That means some people may still be able to deduct casualty and theft losses at the state level, Investopedia explains.

William Vaughan Company, an accounting and advisory firm, provided this example of a theft loss that may qualify for a deduction on a federal tax return: Your city is struck by a tornado and the president declares it a disaster area. Afterward, a thief accesses your home through a window broken by the storm and steals your car.

“One could argue the loss of the car was from theft due to a disaster,” William Vaughan Company says.

The president often declares a major disaster for areas that are hit by significant hurricanes, tornadoes or floods. The IRS has information about federally declared disasters on its website.

Steber recommends that taxpayers keep an inventory list of all the items in their home so they know what could be damaged or lost, and are more easily able to claim the deduction amount if they qualify.

If you were a victim of theft during a federally declared disaster, the IRS has more information about other limitations on its website.

The same rules about deducting the value of stolen property generally apply to people whose money is stolen from them in a scam.

But there is an exception for people with losses attributed to Ponzi schemes, which are a specific type of investment fraud. The Tax Cuts and Jobs Act didn’t change the tax rule for Ponzi schemes, which has been around since 2009 in response to Bernie Madoff’s multi-billion dollar scam that defrauded investors worldwide, Alex Muresianu, senior policy analyst at the Tax Foundation, explained.

The IRS has more information for victims of Ponzi schemes on its website.

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