Question

Theft of investment assets.

Forum|Forum|3 years ago
October 9, 2022
1 reply
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Actually this is an embarrassing question. I had a theft of significant investment assets (online crypto currencies) and Turbo Tax reads that the software doesn't handle that, I should engage a tax attorney. I notice the form 4684, Part II has a section " Casualty or Theft of Property Held One Year or Less". Could such a loss be reported with Form 4684, outside of my Turbo Tax generated return?

rjs

Employee

Under the new tax law that was passed in 2017, there is no federal tax deduction for thefts for years 2018 through 2025. There is an exception for Ponzi schemes, but it doesn't sound like that is your situation.

It's possible that your state might allow a deduction on the state tax return.

(Technically you could claim a federal deduction if the theft is a result of a federally declared disaster, but realistically disasters do not cause thefts. And in any case, that doesn't seem to be your situation either.)

Form 4864 cannot be filed by itself. It has to be included in your tax return. But it doesn't matter, since you can't claim the theft loss anyway.

vince4ltciAuthor

Thank you for the bad news. $100,000 and it is all mine.

O

Opus 17

Employee

@vince4ltci wrote:

Thank you for the bad news. $100,000 and it is all mine.

For that amount of money, contact a CPA. Many of the cryptocurrency scams could probably be considered Ponzi schemes.

It also may be possible to report this as an investment loss (capital loss) on schedule D. The downside is that you can only deduct losses up to your capital gains for the year, plus $3000, and you can carry the rest forward. It may take a long time to deduct a $100,000 loss that way, but it's better than nothing.

The IRS is not going to allow a conventional theft to be deducted as an investment loss; if you purchased a painting by one of the Masters, and it was stolen from your home, that's clearly not an investment loss. But if you legitimately believed you were investing your funds in a security or other instrument, then the theft might be deductible as a loss (the security or investment is now worthless). This is a case where you want to hire an expert to look out for your interests and find the best way to handle the situation.