Flow Points

If deductible, personal property (P) losses will carry to Schedule A, line 15.

Losses marked as employee income-producing property (E) or income-producing property (I) will carry to Schedule A, line 16.

If the loss is marked as a business property (B), the loss may carry to Form 4797, line 14 (if required). If Form 4797 is not required, the loss will carry to Form 1040, Schedule 1, line 14 with the literal F4684 to the left.

Casualty or theft losses of personal use property are generally deductible only to the extent that the amount of the loss from each separate casualty or theft is more than $100 and the total amount of all losses (as so reduced) during the year is more than 10% of the taxpayer’s AGI (Form 1040/1040-NR, line 11).

If the property is covered by insurance, the taxpayer must file a timely insurance claim for reimbursement of the loss or he/she cannot deduct the loss as a casualty or theft loss. The part of the loss that is not covered by insurance is still deductible.

If the amount received in insurance or other reimbursement is more than the cost or other basis of the property, the taxpayer will have a gain, for which they will have to pay tax. The taxpayer may be able to postpone the gain.

For more information, see Publication 547 and the Form 4684 Instructions.

Generating Page 2

Form 4684, page 2 reflects casualty or theft gains or losses on trade or business or income-producing property as reported in Section B, Business and Income-Producing Property.

If the property is used in a trade or business, select B from the Property Code drop list. Other choices are I for income-producing property and E for employee income-producing property. If property is used partly in a trade or business and partly for personal purposes, such as a personal home with a rental unit, figure the personal part in Section A and the business part in Section B.

If no selection is made from the Property Code drop list, the default is P for personal property, which will report to Section A, Personal Use Property.

Ponzi Loss

These losses are deductible as theft losses of income-producing property on your tax return for the year the loss was discovered. You figure the deductible loss in Section B of Form 4684 and it carries to Schedule A, line 16. If you qualify to use Revenue Procedure 2009-20 and follow the guidance procedures, you also must complete Section C. The Form 4684 Instructions describe this section of the form:

"Use Section C to figure a theft loss deduction from a Ponzi-type investment scheme if you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and choose to follow the procedures in the guidance. Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. You don't need to complete Appendix A. See Losses From Ponzi-Type Investment Schemes, later [in the instructions]."

Income-producing property can be indicated on screen 4684 by selecting code I from the drop list for the field Property Code (Personal, business, income-producing or employee income-producing property).

The IRS optional “safe harbor” provision described in Revenue Procedure 2009-20 eases the evidentiary requirements for claiming a Ponzi theft loss. To use this option, complete Section C Theft Loss Deduction for Ponzi-Type Investment scheme on screen 4684. This produces page 3 of Form 4684. There is no required PDF attachment for e-filing.

Natural Disasters

This type of loss is reported on Form 4684 and carried to Schedule A. Enter the loss on the 4684 screen in data entry.

For more information, see Publication 547.

Beginning 2018

Beginning with tax year 2018 taxpayers are not able to claim a casualty, or a loss on their Federal return, unless it is located in a Federally Declared Disaster area. The taxpayer will also be required to register with FEMA for each of the disasters and create an account. Once the taxpayer registers with FEMA they will receive a registration number, that will be required to be present on the form when filing the return.

For further instruction, see the Tax Cuts and Jobs Act.

Disaster Loss Elections

In October 2019, T.D. 9878 finalized regulations regarding making and revoking elections to claim disaster losses from a prior year under Code Section 165(i). Under these final regulations, taxpayers have more time to make an election for disaster losses.

Losses, occurring in a disaster area and attributable to a federally declared disaster, can be deducted in the tax year immediately preceding the year the disaster occurred. If an election is to be made on a prior year return, it must be made within six months of the due date of the taxpayer’s federal return for the year of the disaster (without regard to any extensions). The election may be revoked on or before the date that is 90 days after the due date for making the election.

To elect to deduct a loss in a federally declared disaster in a prior year, access screen 4684, Casualties and Thefts, and click on the blue link in Section A. Enter information regarding the disaster screen FDDL. Revocation of prior elections can also be entered on this screen.

See the FAQs about Section 165(i) and IRS Bulletin 2019-45 for more information.