While it may come under the title of “first world problems,” walking out in the morning to drive to work or run an errand and finding your car is no longer parked in the driveway may be one of the most upsetting things that can happen to you. Beyond the inconvenience and expense, many of us form attachments to our vehicles – and because the loss is through theft, it can feel like a terrible violation of our privacy. But since the government considers your vehicle to be just another piece of property, is there a tax deduction for the theft of your car?
As you may already know, the Tax Cuts and Jobs Act of 2017 (TCJA) suspended the deduction for casualty and theft losses for tax years 2018 through 2025. This includes the deduction you may have been able to claim for a stolen vehicle in prior tax years. But, of course, this is tax law, and nothing is that simple as there are cases where you can deduct the value of your lost vehicle. The TCJA continued to allow individual deductions for casualty and theft losses if they occurred because of a presidentially declared disaster, such as major hurricanes, wildfires, floods, or even terrorist actions. Businesses losses were not suspended by the TCJA and may still be deductible even if they did not happen because of a federally-declared disaster. So how would this apply to the theft of your auto?
One situation that might arise under this exemption is if your vehicle was stolen or damaged as part of a federally declared disaster area loss. For example, say you live in Florida, which is threatened by a major hurricane, and the state orders your area to be evacuated. You and your family dutifully pack up and drive away, leaving your other vehicle at home. The hurricane causes major damages, and the area is declared a disaster by the President. Sometime during the hurricane and resulting damages, looters steal the vehicle, which you discover upon returning home. In this case, the theft of the vehicle would be considered part of your casualty loss in addition to any damages to your home caused by the hurricane. Likewise, if the vehicle was heavily damaged by the hurricane – even if it wasn’t stolen – and is totaled by your insurance company, the loss of the vehicle would be considered a deductible casualty loss as the damage occurred due to a federally declared disaster. It’s similar to the deduction for the loss of personal items such as furniture that is damaged if your roof blows off – it’s all part of the same disaster and is therefore treated as one disaster loss, even if you have to itemize the lost items individually. In these kinds of disasters, the amount of the deductible casualty is not limited to just the damages to your home; it applies to all items in or adjacent to the home that were damaged or destroyed, such as carports, detached garages, or outbuildings and sheds.
Another exception would be if you used your vehicle for your business or an income-producing activity, in which case you can deduct the theft loss regardless of whether it occurred because of a disaster. As we mentioned earlier, the TCJA did not suspend business casualty and theft losses. For example, if Mike is a plumber and owns a truck he uses for his plumbing business that holds his equipment and supplies, and that truck is stolen or gets broken into, the damages caused by that theft would be deductible to Mike as a business casualty. This also applies to income-producing activities like rental properties. If your rental property is broken into and the thieves steal items from the property, such as fixtures, then you can deduct the loss from this theft regardless of whether it occurred during a federally declared disaster.
Keep in mind, however, that the deductible loss on any casualty is the difference between the fair market value before the casualty and the fair market value after the casualty, less any reimbursements from insurance or other sources. And a personal casualty, such as the loss of a vehicle due to theft or damage from a natural disaster, are subject to a dollar reduction ($100 for most casualties, or $500 for a qualified disaster) and an adjusted gross income (AGI) reduction as well for nonqualified disaster losses. Qualified disasters are a special designation issued by the President which receive additional tax benefits (and which we won’t cover here). Since establishing the fair market value of an item is critical to getting a deduction, it’s advisable to seek the assistance of a qualified appraiser to determine the appropriate fair market values. While the cost of the repair or replacement can sometimes be used to determine the casualty loss, the use of these repair or replacement costs is limited. You can find out more information on those methods in IRS Publication 547, Casualties, Disasters, and Thefts.
While the deduction still goes to Schedule A, the rules for business casualties are slightly more generous than those for personal casualties, as the deductible loss is simply the difference in fair market value before and after the casualty or theft, less any reimbursements. And if you use your vehicle as an employee (such as an outside sales representative), this is not considered to be a business casualty even if you use your vehicle 99% of the time for business. Employee business expense deductions, even casualties, are also suspended under the TCJA’s rules.
What if your vehicle is recovered by the police? If you are fortunate enough to have your stolen vehicle recovered, hopefully without any damage, then you may not have a loss even if it was stolen during a casualty. There must be a loss in value to the car to have a deduction. But if the car is damaged by the thieves, you can still claim the casualty (if there is a reduction in the fair market value) even if you recover the vehicle, providing it qualifies as a federal disaster loss.
We hope that this type of theft never occurs to you, though, as the loss of your favorite car can never be made up by a tax deduction.