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George Saenz, the Bankrate.com Tax Talk columnistStolen jewelry a tax deduction?

Dear Tax Talk,
Over a period of about three weeks, our grandson was stealing some of my jewelry without us realizing it. We only have $100 coverage for jewelry on our homeowners insurance policy. We did not even turn in a claim because we knew there was no reason because it was not covered.

The actual amount of loss was around $5,000. Not the actual value. None of the jewelry has been recovered. My question is: Will we be able to claim this loss on our taxes? Thank you.
-- Doris

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Dear Doris,
Theft is a deductible loss for tax purposes. A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred, and it must have been done with criminal intent.

Although the law does not require that you file a police report to substantiate the claim, in the situation with your grandson, the Internal Revenue Service, if it wanted to be tough, could say that your grandson did it because he knew you wouldn't do anything about it. This would go to the issue of criminal intent and, thus, could cause the denial of the deduction.

The amount of the loss is the lesser of the cost or value of the stolen property on an item-by-item basis. For example, if a ring costs $1,000 but was worth $2,000, the loss on that item is $1,000. Conversely, if a necklace costs $1,000 but was worth $500, the tax loss on that item is $500. Since the $100 coverage is probably less than your deductible, the fact that you didn't file an insurance claim is not important.

The total of each theft loss must be reduced by $100 for each occurrence. (This is just a set threshold having nothing to do with your insurance coverage.) You said that the theft occurred over a period of three weeks, so you may have more than one theft and, hence, must reduce your loss by $100 for each occurrence.

Lastly, you must reduce the total of all losses for the year by 10 percent of your adjusted gross income. Use Form 4684 to report the loss and carry the total to Schedule A of Form 1040.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: Aug. 22, 2006
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