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Theft: Disaster and Theft Tax Relief (2025 IRS Guide)

This guide covers “Theft” within disaster and theft tax relief. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 547 (2025), Casualties, Disasters, and Thefts, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Theft

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. You don’t need to show a conviction for theft.

Theft includes the taking of money or property by the following means.

  • Blackmail.

  • Burglary.

  • Embezzlement.

  • Extortion.

  • Kidnapping for ransom.

  • Larceny.

  • Robbery.

The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law.

Theft loss deduction limited.

For tax years beginning after 2017, if you are an individual, casualty and theft losses of personal-use property are deductible only if the losses are attributable to a federally declared disaster (federal casualty loss).

Caution:

An exception to the rule limiting the deduction for personal casualty and theft losses to federal casualty losses applies where you have personal casualty gains. In this case, you may deduct personal casualty losses that aren’t attributable to a federally declared disaster to the extent they don’t exceed your personal casualty gains.

Example.

Martin and Grace experienced multiple personal casualties in 2025. Grace’s diamond necklace was stolen, resulting in a $15,500 casualty loss. Martin and Grace also lost their camper as a result of a lightning strike. They have replacement-value insurance on the camper, so they have a $13,000 gain. Finally, they lost their car in a flood determined to be a federally declared disaster, resulting in a casualty loss of $25,000. Because Martin and Grace experienced a $13,000 personal casualty gain as a result of the replacement-value insurance, they can offset that gain with a portion of their loss attributable to the stolen necklace and claim the full federal casualty loss of $25,000 subject to the $100 and 10% of AGI reductions.

Decline in market value of stock.

You can’t deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. However, you may be able to deduct it as a capital loss on Schedule D (Form 1040) if the stock is sold or exchanged or becomes completely worthless. For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Pub. 550.

Mislaid or lost property.

The simple disappearance of money or property isn’t a theft. However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Sudden, unexpected, and unusual events were defined earlier under Casualty.

Example.

A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. The diamond falls from the ring and is never found. The loss of the diamond is a casualty.

Losses from Ponzi-type investment schemes.

The IRS has issued the following guidance to assist taxpayers who are victims of losses from Ponzi-type investment schemes.

If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Skip lines 19 through 27, but you must fill out Section B, lines 29 through 39, as appropriate. Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. You don’t need to complete Appendix A. For more information, see the above revenue ruling and revenue procedures and the Instructions for Form 4684.

If you choose not to use the procedures in Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, you may claim your theft loss by filling out Section B, lines 19 through 39, as appropriate.

Losses from financial scams.

The IRS has issued guidance to assist taxpayers who are victims of financial scams. Victims of certain scams may claim a theft loss deduction under section 165 if all the following conditions apply.

  • The loss must result from criminal conduct classified as theft under applicable state law.

  • The taxpayer must have no reasonable prospect of recovering the stolen funds.

  • The loss must arise from a transaction entered into for profit.

If you were the victim of a financial scam, review advice memorandum number 202511015 for additional guidance.

Note:

The personal-use property limitation for tax years beginning after 2017 does not apply to losses on income-producing property, such as losses from Ponzi-type investment schemes, or financial scams.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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