I had a car stolen from me this past year. My insurance gave me a fair reimbursement for my vehicle, but I also lost personal items and had rental car expenses related to this theft (I had to rent a car after it was stolen before I bought a new one). The items in the car were valued at approximately $4,550 -- for electronics, CDs, clothes, etc. -- of which the insurance only reimbursed $200. What am I allowed to deduct on my income taxes for loss of personal property and expenses related to the theft?
You can deduct theft losses on your taxes, in theory, but it can be extremely difficult to qualify for this write-off.
First, you need to figure the fair market value of the stolen items or your adjusted basis in the property (the original cost plus any improvements), whichever is lower. In your case, that's the depreciated value of the car -- the cost to buy a used car like the one that was stolen, not the cost to replace it with a new car.
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The same is true for the electronics, CDs and clothes that were stolen. You can deduct only the cost to buy used items in similar condition, which is probably a lot less than $4,550. And you cannot deduct the cost of renting a car, even though you needed to rent the car after yours was stolen, says Barbara Weltman, contributing editor to J.K. Lasser's Your Income Tax 2008. "Only property losses are deductible," she says.
Then, subtract any reimbursement you received from your insurance company. It sounds like you received a fair amount for the stolen car and won't be able to take an extra deduction except for your deductible (if you had to pay a $1,000 deductible after the car was stolen, for example, you can consider that $1,000 as part of an unreimbursed theft loss). If the value of the used electronics, CDs and clothes was more than $200, then you can consider the extra value in your calculation, too.
Add up your unreimbursed losses from that theft and subtract $100. If you have other casualty or theft losses for the year, you'll need to subtract $100 from the unreimbursed losses for each of those events, too. (A casualty is damage to property caused by an identifiable event that is sudden, unexpected or unusual -- such as a hurricane or fire that damages your home. You'll need to subtract $100 from the total unreimbursed loss from each hurricane, for example.)
Then subtract 10% of your adjusted gross income from all of your unreimbursed theft and casualty losses for the year. You can only deduct casualty and theft losses above that 10% of AGI threshold.
For example, say that your insurer reimbursed you for the value of the stolen car. However, you had to pay a $1,000 deductible, and your insurer didn't pay you for $500 worth of items that were stolen with the car. In that case, you'd start with a $1,400 loss ($1,500 minus the $100). If you have an adjusted gross income of $50,000, you'd then subtract $5,000 from the loss (10% of your AGI). Because $1,400 is less than $5,000, you can't deduct any of the loss. "This really only applies to big-ticket items," says Weltman.
The deduction can come in handy, for example, if you have valuable items stolen that weren't covered by insurance, or if your house was destroyed by a hurricane and your homeowners insurance had a very high hurricane deductible (in some high-risk areas, for example, homeowners have to pay 5% of the home's insured value before the coverage will kick in).
If you do have a loss that is big enough to qualify, then you can take the write-off on Schedule A if you itemize your taxes. Follow the instructions for Form 4684 for help with the calculations, then file Form 4684 with your taxes, too.
For more information, see Publication 547 Casualties, Disasters and Thefts.