In 2023, the IRS released a memo clarifying that tax deductions for theft losses are limited to individuals who meet strict criteria. These criteria require the taxpayer to incur personal losses from transactions involving businesses or individuals “entered into for profit,” which is a term players can find a bit confusing. The memo also mentioned that the IRS has not changed its stance, but providing some clarity could help those affected.
Scams have been evolving rapidly, with the FBI’s Internet Crime Complaint Center reporting about 859,532 complaints in 2024, amounting to $16.6 billion—33% higher than the previous year. These scams often involve phishing and spoofing, tricking people into providing sensitive info or assuming risks they don’t take.@” Inspiration”: If a victim is a fraud, they may not qualify, but those who honestly obtain their money and protect it are eligible.
Historically, IRS has allowed tax deduction for losses from fires, floods (which became weather losses), and shipswrecks. By the 1930s, they expanded it to include “storms.” The modern tax system, replacing the pre tax with the tax deduction, continues to define risks as losses, including theft. Overall, even with more sophisticated scams, the deduction remains in play for those who can meet the specific criteria.
