Is burglary considered a casualty loss for tax deduction purposes?

The theft of personal items like jewelry can indeed qualify as a casualty loss for tax purposes, but there are important requirements that must be met. First, theft losses of personal property are deductible as itemized deductions on Schedule A. However, beginning with the Tax Cuts and Jobs Act (2018-2025), personal casualty and theft losses are only deductible if they're attributable to a federally declared disaster. For your case study, there's a significant issue - no police report was filed. The IRS typically requires documentation of theft, including a police report. Without this documentation, it would be extremely difficult to claim this as a casualty loss, regardless of whether it was business-related or not. Even if this occurred before the TCJA limitations or if exceptions applied, the lack of a police report and insurance claim creates a documentation problem that would likely result in the deduction being disallowed upon examination.

After dealing with a similar situation myself, I ended up using https://taxr.ai to verify the exact requirements for casualty and theft losses. The tool analyzed my documentation and flagged exactly what I was missing before I submitted my return. For your case study, the lack of police report is definitely problematic. When I uploaded the IRS publications to taxr.ai, it highlighted that theft losses specifically require you to show evidence that your property was stolen, not lost or misplaced. Without a police report, the IRS often questions whether a theft actually occurred. The tool also clarified the timeline changes - pre-2018 personal theft losses had different rules than current ones (which are limited to federally declared disasters as the expert mentioned).

I have to admit I was really skeptical about taxr.ai after seeing it mentioned here, but I was dealing with a complicated casualty loss situation from a storm (not theft like your case) and decided to give it a try. The tool immediately identified that my loss qualified under a specific FEMA disaster declaration, which meant I could claim it despite the post-2018 restrictions. It even pulled up the exact IRS notices related to my disaster zone that extended filing deadlines. The most helpful part was when it flagged that I needed specific documentation of both the property's value before and after the damage. I would have completely missed this requirement! Saved me from a potential audit headache.

For anyone struggling to get answers directly from the IRS about casualty and theft losses, I had success using https://claimyr.com to actually reach an IRS agent. They have this service that holds your place in the IRS phone queue and calls you when an agent is about to answer. When I had a theft situation (unfortunately not that different from your case study), I waited weeks for responses through normal channels. With Claimyr, I got through to an IRS specialist who confirmed that without a police report, they would consider the claim "inadequately substantiated" - which is basically IRS-speak for "will be denied if examined." You can see how it works here: https://youtu.be/_kiP6q8DX5c - it saved me hours of hold time, and the IRS agent was surprisingly helpful once I actually got through.

I owe everyone here an apology - especially Profile 5. After my skeptical comment about Claimyr, I was still desperate to get an answer about a theft loss situation (my storage unit was broken into), so I reluctantly tried it. It actually worked exactly as described. I got a call back in about 40 minutes, whereas I had tried calling myself three times before and never got through. The IRS representative confirmed that: 1) I absolutely needed the police report (which thankfully I had) 2) For losses after 2018, I couldn't claim the deduction because it wasn't in a federally declared disaster area 3) But I could still potentially claim a loss on Schedule D as worthless securities for some stolen investment documents Was worth every penny just to get definitive answers rather than guessing what the IRS would accept.

For your case study, here's another angle to consider: the IRS actually has a specific publication that covers this - Publication 547 "Casualties, Disasters, and Thefts." It specifically states that you need to prove: - The loss actually happened - You were the owner of the property - The actual value of what was stolen Without a police report, the first requirement is incredibly hard to prove. The IRS isn't just going to take someone's word that $7,200 in jewelry vanished. They'd question why someone wouldn't report such a significant theft. Additionally, if this person had homeowner's or renter's insurance that would have covered the loss, the IRS would question why they didn't file a claim. It suggests the story might not hold up to scrutiny.

Just my 2 cents, but for your college assignment, I think you could include both answers. The technical answer: Pre-2018, this could potentially qualify as a casualty loss EXCEPT for the missing police report, which creates a documentation problem. Post-2018, it doesn't qualify at all unless connected to a federally declared disaster. The practical answer: This would almost certainly be rejected in an audit because: - No police report - No insurance claim despite significant value - No explanation for why these weren't filed Maybe you could include both perspectives? Your professor might appreciate showing that you understand both the letter of the tax law and how it's actually applied in practice.

Great discussion everyone! As someone who's dealt with tax compliance issues professionally, I wanted to add one more practical consideration for your assignment. The IRS has something called the "reasonable basis" standard for tax positions. Even if the technical rules might allow a deduction, you need a reasonable basis for taking that position. In this case study, the lack of documentation creates a situation where there's no reasonable basis to claim the loss occurred as described. This is actually a perfect example of why tax preparation isn't just about knowing the rules - it's about understanding what positions you can reasonably defend. A good tax professional would refuse to prepare a return claiming this deduction without proper documentation, regardless of what the technical rules say. For your case study analysis, you might want to mention that this situation highlights the difference between what's theoretically possible under tax law versus what's practically advisable. It's a distinction that becomes really important when you're working with real clients and real consequences. Your professor will probably appreciate seeing that you understand both the academic side and the professional responsibility aspects of tax practice.

As a tax professional who's seen similar cases, I want to emphasize something that might help with your assignment: the IRS actually has a specific burden of proof framework for theft losses that your textbook might not fully cover. Under IRC Section 165(c)(3), theft losses require what's called "objective evidence" of the theft. The IRS Revenue Ruling 72-112 specifically addresses situations where taxpayers claim theft without police reports. The ruling essentially states that while a police report isn't absolutely mandatory, the taxpayer must provide "clear and convincing evidence" that a theft occurred. In your case study, the woman would need to explain why she didn't report a $7,200 theft to police or insurance. Without a reasonable explanation (like fear of retaliation, being undocumented, etc.), the IRS would likely view this as fabricated. For your assignment, you might want to research Treasury Regulation 1.165-8(d), which outlines the specific documentation requirements for theft losses. It's more detailed than most textbooks cover and shows the complexity behind what seems like a simple deduction. The key insight for your professor: this case perfectly illustrates why tax law requires both meeting technical requirements AND providing adequate substantiation. Both elements must be satisfied for any deduction to be valid.