In November 2023, Gray Reed Tax Partners Joshua Smeltzer and Matthew Roberts authored an article titled “Where Have All the Theft Losses Gone?” published in Taxes: The Tax Magazine.
The article discusses whether taxpayers can deduct theft losses on their tax returns for 2018-2025 after new limitations were set by the 2017 Tax Cuts and Jobs Act (TCJA). Before the TCJA, claiming theft losses was relatively straightforward, with some restrictions. However, the TCJA suspended theft loss deductions in 2018-2025 except for losses due to a federally declared disaster.
There exist plausible arguments on both sides of this issue. Some assert that theft losses remain eligible as 1) business losses or 2) losses derived from profit-driven transactions, drawing support from prior IRS guidance. Moreover, the latter category of losses does not fall under the TCJA-imposed limitations on specific miscellaneous deductions. Conversely, others contend that the current language of the tax law significantly narrows the scope of permissible theft losses. Additionally, Gomas established a precedent by stipulating that these deductions were suspended under the TCJA from 2018 to 2025.
Amidst uncertainty over claiming theft losses, doing so now may risk tax penalties. However, a justifiable basis for claiming the loss might exist if tied to specific case circumstances and supported by IRS guidance. Seek professional assistance and disclose uncertain tax positions when claiming a theft loss.
To read the full article, click here.