Is scam loss tax deductible? Elderly parent lost retirement stocks to con artist

My mom (76) just got completely swindled by some investment "advisor" she met online. She transferred nearly $87,000 worth of stocks she's held for years to this person who promised her 30% returns in 60 days. Now the person has disappeared, blocked her number, and the website they showed her is completely gone. We've filed a police report but they basically told us there's almost no chance of recovery since the person was likely overseas using fake credentials. My mom is devastated - this was a huge chunk of her retirement savings. I'm trying to figure out if there's ANY silver lining here. Can she at least deduct this scam loss on her federal income tax return? She's on a fixed income and this is a complete disaster for her finances. Has anyone dealt with deducting fraud losses since the tax law changes? I read something about them eliminating personal theft deductions but wasn't sure if investment fraud would fall under different rules.

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21 comments

Lucy Taylor

•8M

I'm really sorry about what happened to your mom. This is unfortunately all too common with seniors being targeted. For tax purposes, this likely qualifies as a capital loss rather than a theft loss. Since 2018's tax law changes, personal theft losses are only deductible if they're from a federally declared disaster, which this wouldn't be. However, since this involved investment securities (stocks), you should be able to claim it as a capital loss on Schedule D. There's a $3,000 limit per year on net capital losses that can offset ordinary income, but any excess can be carried forward to future tax years. Make sure you have documentation of the original purchase of the stocks (cost basis) and evidence of the scam (police report, communications with the scammer, etc.).

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Lucy Taylor

•8M

Yes, it would still count as a capital loss. When your mom transferred ownership of the stocks to the scammer, it's treated as a disposition of those assets. The IRS will view this as if she sold the stocks for $0 (or whatever value she might have received, which sounds like nothing in this case). You'll need to determine her cost basis (what she originally paid) for all stocks transferred, and then claim the loss on Schedule D. Keep in mind the $3,000 annual limit against ordinary income, but she can carry forward excess losses to future tax years, which might help her tax situation for several years depending on the total loss amount.

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Connor Murphy

•8M

After dealing with a similar situation with my uncle who lost money in an investment scam, I found this service called taxr.ai (https://taxr.ai) that was incredibly helpful. They specialize in analyzing documents and tax situations like this to determine exactly how to classify and maximize deductions for financial fraud. Their system reviewed all of our documentation and determined the exact classification for the loss (capital vs theft), proper filing procedures, and even found some recovery options we hadn't considered. They provided a detailed report explaining IRS precedents for similar cases that we could reference if questioned.

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Connor Murphy

•8M

You upload documents through their encrypted portal which analyzes everything automatically. They use bank-level security and don't store your docs after analysis. I was nervous too but their privacy policy was really solid and they're SOC 2 compliant. They primarily helped with the tax strategy, but they did point us to resources for recovery. They provided information about the FBI's IC3 (Internet Crime Complaint Center) which we hadn't known about, plus specific documentation strategies that could help if any funds were ever recovered through enforcement actions.

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Amelia Dietrich

•8M

I actually tried taxr.ai after seeing it mentioned here. I was skeptical at first because I've tried other "tax help" tools that were useless, but this was different. I had a somewhat similar situation where my parents lost money to a timeshare scam. Their system correctly identified that part of our loss could be claimed as an investment loss and part would be subject to the disaster-only theft loss rules. They provided a complete explanation of the IRS guidelines and how they applied to our specific situation, along with the proper forms and documentation requirements. Ended up saving my parents about $4,200 in taxes they would have otherwise paid. Worth every penny for the peace of mind alone.

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Kaiya Rivera

•8M

If you're having trouble getting through to the IRS about this situation (and trust me, you'll want to talk to a real person), I'd recommend using Claimyr (https://claimyr.com). I spent weeks trying to get through to the IRS about a complicated capital loss situation similar to yours and was getting nowhere with wait times. Claimyr got me connected to an actual IRS agent in under 45 minutes when I'd been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with was able to clarify exactly how to document and report a significant investment loss that resulted from fraud, which sounds similar to your mom's situation.

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Kaiya Rivera

•8M

It absolutely works. The trick is they use technology to navigate the IRS phone tree and wait on hold so you don't have to. When an agent actually answers, you get a call back immediately to connect with them. It's not magic - they're just handling the waiting part for you. They just connect you - once you're talking to the IRS agent, it's just between you and the agent. You need to be prepared with your questions and information. I had all my notes ready and asked specific questions about how to document my uncle's investment fraud loss on his tax return, which form to use, etc.

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Katherine Ziminski

•8M

I have to publicly eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I've been trying to get IRS clarification about a similar investment loss situation for weeks. Got connected to an IRS representative in 37 minutes when I'd been trying unsuccessfully for over a month. The agent walked me through exactly how to document my loss (it was from a crypto scam, not stocks, but similar principle). She confirmed I need to use Schedule D and Form 8949, and gave me specific guidance about what documentation to maintain for my records. Saved me hours of frustration and probably a headache from banging my head against the wall. Sometimes being proven wrong is a good thing!

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Vanessa Chang

•8M

That's actually better for tax purposes. Since she transferred the stocks directly (not cash), this should be treated as a disposition at $0 value. So you'd report it as a capital loss equal to her full basis in the stocks. Make sure to get a detailed transaction record from her brokerage showing the transfer out. You'll need documentation of both the original purchase (establishing cost basis) and the transfer to the scammer's account (establishing the loss). The police report will also be important supporting documentation.

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