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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Estate Law
Satisfied Customers: 113508
Experience:  Experienced in Trust and Succession Law, including Louisiana Laws
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Dad get's conserved in 2009 and is moved out of his home.

Customer Question

Dad get's conserved in 2009 and is moved out of his home. His home gets red tagged, burglarized, and eventually raized. He had no insurance, but several pieces of expensive art were stolen from the home during the burglary. No personal property inventory of note was taken by the conservator. The conservator did file a police report on the theft but didn't even know what was taken so it doesn't list details.Dad dies in 2016. Some children assumed the art was in storage, but it turns out 6 boxes are left of his 5200 sf home. Some children and the Conservator find out exactly what was stolen and inform her it was extremely valuable. Children want the conservator who is now the estate Trustee to deduct the valuation of the stolen items as 150K of losses on the Estate taxes or another tax return such as Dad's Trust 1041.One CPA says the losses should've been claimed in the year the theft occurred. It is confirmed NO losses were ever taken and no insurance claim was ever made. The children's answer to that CPA is that the extent of the theft wasn't known to the Conservator/Trustee until 2016, so they should be able to claim it now. Can she? How?
Submitted: 5 months ago.
Category: Estate Law
Expert:  Attorney2 replied 5 months ago.

Welcome and thank you for your question.

Expert:  Attorney2 replied 5 months ago.

I am so sorry that you father's estate was handled so poorly.

One CPA says the losses should've been claimed in the year the theft occurred. It is confirmed NO losses were ever taken and no insurance claim was ever made. The children's answer to that CPA is that the extent of the theft wasn't known to the Conservator/Trustee until 2016, so they should be able to claim it now. Can she? How? She would use form 1040.

The loses can be deducted on the tax return for in the year the theft was discovered.

515 "Casualty and Theft Losses.

Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.

Disaster Area Losses – A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. It includes a major disaster or emergency declaration under the Act. See Publication 547, Casualties, Disasters, and Thefts, for more information.

Casualty Losses - A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration.

If your property is personal-use property or is not completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of your property as a result of the casualty

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis.

Theft Losses - A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent.

The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.

Insurance or Other Reimbursements

You must reduce the loss, whether it is a casualty or theft loss, by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation. For more information about the basis of property, refer to Topic 703, Publication 547, Casualties, Disasters, and Thefts, and Publication 551, Basis of Assets. You may determine the decrease in fair market value by appraisal, or if certain conditions are met, by the cost of repairing the property. For more information, refer to Publication 547.

Claiming the Loss

Individuals are required to claim their casualty and theft losses as an itemized deduction on Form 1040, Schedule A (PDF), Itemized Deductions, (or Schedule A in Form 1040NR (PDF), if you are a nonresident alien). For property held by you for personal use, you must subtract $100 from each casualty or theft event that occurred during the year after you have subtracted any salvage value and any insurance or other reimbursement. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year. Report casualty and theft losses on Form 4684 (PDF), Casualties and Thefts. Use Section A for personal-use property and Section B for business or income-producing property. If personal-use property was damaged, destroyed or stolen, you may wish to refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer to Publication 584-B (PDF), Business Casualty, Disaster, and Theft Loss Workbook. These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records.

When to Deduct

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the casualty loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. Review Disaster Assistance and Emergency Relief for Individuals and Businesses for information regarding timeframes and additional information to your specific qualifying event. For more information, refer to Publication 2194 (PDF), Disaster Resource Guide for Individuals and Businesses.

Theft losses are generally deductible in the year you discover the property was stolen unless you have a reasonable prospect of recovery through a claim for reimbursement. In that case, no deduction is available until the taxable year in which you can determine with reasonable certainty whether or not you will receive such reimbursement.

Special rules may apply to theft losses from Ponzi-type investment schemes. For more information, see the Form 4684 (PDF) and the Form 4684 Instructions (PDF), Casualties and Thefts. Additionally, review Help for Victims of Ponzi Investment Schemes.

When Your Loss Deduction Exceeds Your Income

If your loss deduction is more than your income, you may have a net operating loss (NOL). You do not have to be in business to have an NOL from a casualty. For more information, refer to Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. https://www.irs.gov/taxtopics/tc515.html

Expert:  Attorney2 replied 5 months ago.

Do you have any additional questions for me?

Please do not hesitate to ask me any additional questions that you may have with regard to this matter as it would be my pleasure to assist you.

If you would be kind enough to rate my service positively so I will receive credit for my work I would appreciate it.

YOU DO NOT NEED TO PROVIDE A NEGATIVE RATING TO RECEIVE A REFUND.

Expert:  Attorney2 replied 5 months ago.

I will opt out.

Expert:  Law Educator, Esq. replied 4 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
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