Casualty And Theft Losses

Someone breaks into your house and steals your laptop. Or maybe your garage catches fire (we told you to get rid of those oil-soaked rags). But you don't have insurance. The laptop is just gone. Your new garage will have to get built with whatever you've got in your savings account. But there's some good news. The loss might be tax deductible.

Called casualty and theft losses, this is an amount you lose during a tax period from a theft or a catastrophic event (a fire, an earthquake, a flood, a hurricane, whatever). However, there are a few caveats in order to take the deduction on your income taxes. If you got reimbursed from your insurance company, don’t bother to include the loss on your tax return. You also need to have enough other deductions to itemize. The event can’t have occurred over time, such as erosion at your beach house. The loss has to be over 10% of your “adjusted gross income” found at the bottom of page one on your Form 1040. The IRS will also take $100 off the amount you are claiming.

So let’s say Jane had $5,000 worth of jewelry stolen by a new boyfriend who turned out not to be a Romanian prince after all. Jane’s gross adjusted income was $30,000 so she can deduct any amount over $3,000 (10% of $30,000). The $5,000 stolen was more than the $3,000 limit, so the deduction is in play. Here’s what Jane can deduct under Casualty and Theft losses on Schedule A:

$5,000 loss - $100 (IRS deduction) = $4,900
$4,900 - $3,000 = $1,900

It’s not much, but it’s something. If Jane does happen to get reimbursed by her insurance company in the following year, she would have to report that amount as income.