The federal tax code generally allows individuals to deduct the following types of losses, if they weren’t compensated for them by insurance or otherwise:

• Losses incurred in a business,
• Losses incurred in a transaction entered into for profit (but not connected to a business), or
• Losses not connected to a business or a transaction entered into for profit, which arise from a casualty or theft loss (known as personal casualty or theft losses).

A variety of fraud schemes may fall under the third category.

To deduct a theft loss, the taxpayer/victim generally must establish that:

• The loss resulted from conduct that’s deemed theft under applicable state law, and
• The taxpayer has no reasonable prospect of recovery of the loss.

From 2018 through 2025, though, the TCJA allows the deduction of personal casualty or theft losses only to the extent of personal casualty gains (for example, an insurance payout for stolen property or a destroyed home) except for losses attributable to a federally declared disaster. As a result, taxpayers who are fraud victims generally qualify for the deduction only if the loss was incurred in a transaction entered into for profit. That would exclude the victims of scams where no profit motive exists. The loss of the deduction can compound the cost of scams for such victims.

Please select this link to read the complete article from OSAP Mission Partner Clark Schaefer Hackett (CSH).