When I was really young, we moved from one self-proclaimed Promised Land to another (a.k.a. Texas to California). After taking a midway break at a cheap motel, I remember waking up, walking out to where the U-Haul had been parked the night before, and finding only an oil slick.
It’d all been stolen. My Nintendo! Mario! Battle Beasts! I’d never see them again!
The story had a somewhat happy ending, with the Redding community rallying and providing us with a pile of stuff (including a new Nintendo) when we got to our California home. Plus the cops tracked down the thieves, retrieving what hadn’t been sold, including the irreplaceable family photos.
What Does This Have To Do With Taxes?
Very few personal deductions are allowed in the tax code. One of the few and proud is the Casualty and Theft Losses deduction. While the rules for both Casualty and Theft are generally the same, I’ll be focusing on the theft loss deduction this time around. If you want to read specifically about casualty loss, you can find that here.
Theft Loss Deduction Requirements
In general, you can take a theft loss deduction in the year that the theft is discovered, not when it’s actually stolen. The distinction makes sense: if you get mugged on the street after waiting for 6 hours to buy a rehashed version of last year’s Apple product, only to watch balefully as the theft runs off with your testament to having too much time on your hands, then you know exactly when the theft occurred. If, however, you visit your isolated beach front property in Maui only once a year, it’s hard to know in which year the property was actually ransacked.
Theft includes, but is not limited to, larceny, embezzlement, and robbery. Which I’m sure is important information for the lawyer-types. For the layperson, if someone stole your stuff, you most likely qualify, no matter what complex categorization the courts give it.
And no, you can’t just misplace your item. Forgetting where you put your iPhone does not count as theft.
That last point does lead to a potential fight over whether that missing item was misplaced or stolen, so you better have a good argument for the latter if everything in your house is in perfect condition and its correct place EXCEPT your cell phone.
Value of Stolen Property
To take the Theft Loss deduction, you’ll need to know the value of your property. If a wad of cash was stolen, then the value is the cash value (I know, simple). With property, it’ll be the lesser of the value of the property or the adjusted basis.
I know, that means almost nothing to someone that doesn’t roll around in (spread)sheets all day. The “value of the property” is what you could get for it if you sold it today. Well, assuming it hadn’t been swiped.
“Adjusted basis” means the original purchase price minus any depreciation you’ve taken on it.
Considering how often you’ll be calculating adjusted basis on personal property (somewhere between “hardly ever” and “never”), chances are you’ll be taking the value of the stolen property.
Insurance or Other Reimbursement
For the theft loss deduction, the value of any property you’ve stolen needs to be reduced any reimbursement, such as insurance.
Example: I bought a $10,000 car and had it stolen on the way home in a scene eerily reminiscent of Grand Theft Auto 5. If my insurance paid me back $10,000, I can’t take any theft loss deduction, since I ended up whole from a theft perspective.
Limitation to the Theft Loss
Ah, there’s bad news beyond having been robbed. First, the weird one: each theft has to be reduced by $100.
The $100 floor covers all property stolen in a single theft event. So if someone broke into your house and stole your TV, Xbox, and antique VCR, you reduce the whole group by $100, not $100 each.
After that, there’s a far worse limitation: 10% AGI.
Adjusted Gross Income (AGI), as we’ve discussed before, is basically your income after a few random deductions. It’s line 37 on the 1040 in 2014.
Once you’ve calculated your AGI, multiply it by 10%. Then take all your theft amounts and casualty losses grouped together, less than random $100 deduction for each event. Subtract the 10% number you just calculated.
The resulting number will go on your itemized deduction list.
Example: My AGI is $50,000. Some jerk stole my moving van. The value of the stuff inside the van (screw the van, I’ll let U-Haul deal with it) comes to $20,000. Nothing inside was covered by insurance.
First, my theft loss needs to be reduced by $100. So I have $19,900 left to deduct. Whatever.
Next, I need to calculate 10% of my AGI. $50,000 x 10% = $5,000.
Finally, to calculate my deduction. I reduce my $19,900 amount by $5,000, which gives me a total theft loss deduction of $$14,900.
If you’re doing the math along with me, it’s pretty easy to see where the Theft Loss Deduction will disappear if either (a) the item stolen was less than 10% of your AGI or (b) you have high income.
Which is to say that my title is kind of a lie. Chances are you won’t get to deduct a stolen iPhone unless you have almost no income or it was stolen along with the rest of your crap.
Filling Out the Form
If you do have a theft loss, you’ll fill out Form 4684. Personal Loss goes on Section A. Following the instructions will walk you through what I discussed above, ultimately giving you the number that needs to be carried over to 1040 Schedule A.
Feel free to reach out to me if you want to know more. Comments below work fine, or @TimJGordon on Twitter.