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Trust deduction for theft loss during covid

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October 27, 2020
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I have researched this on the internet and have had difficulty in getting an answer via IRS regulations. My mom passed away last month due to Covid and during the disposal of her belongings it was found out that several valuable jewelry items were stolen during the process. In preparation of the 1041 trust estate income tax return for 2020 would like to know if this loss can be deductible. I have read that theft deductions may be disallowed due to the Tax Act but may be allowed if a national disaster has been announced by president. I think that was done in March 2020. It seems that the listing of stolen items would be entered into Turbo Tax Business via form 4684. The first question is would the deduction be allowed for each of the items or is there a limit to the number of items and secondly can multiple items be listed in Turbo Tax Business with the appraised values of each loss but no original cost information. We have pictures of the items stolen, a police report has been given and the insurance reimbursement is limited to $1,500. The value of the lost items is close to $30,000. We have appraisals but not original cost receipts as many of the items are very old. Any help to these questions and/or some written guidance would be greatly appreciated!

Best answer by ron6612

my conclusion is you are not entitled to a deduction.

Just came in from CPA and senior tax manager: this has been complicated research

President Trump did approve DR-4486-FL Major Disaster Declaration for Florida on March 25, 2020. This allows casualty or theft losses of personal-use property that are attributable to the declared disaster, in this instance Covid-19 Pandemic. There should be written justification of how the theft is attributable to the Pandemic in your records.

The deductible amount of the theft loss is the adjusted basis of the property (not FMV – the IRS considers FMV of property subsequent to theft to be $zero).

When the theft occurred would have bearing on this determination, prior to or post the passing of your mother – the basis step-up/down doctrine may apply.

M-MTax

Sorry about your Mom. Was the stuff stolen before she passed away or after? If before then the loss is the lower of the cost basis or fmv so you have to know the cost. If after then the basis is the fmv on the date of death so you have both the basis and the appraisal and can enter the fmv on the date of death as the basis.

R

ron6612Author

Thanks for your reply! Do you know where I can get information on how this all works? In my research I’ve been confused in my readings as to does it need to be national emergency, how many items can be listed (we have about 10), is there a deductible per item, etc. Has the Tax Act changed the rules? It’s difficult to get straight information on 1041 as the research tends to bring in 1040 rules vs. 1041.