Geek the Library

The Henrico County Library system has been participating in the Geek the Library national library awareness campaign.

Like Don Farmer said, "CPAs aren't boring people, they're just excited by boring stuff."

Why is a theft loss better than a capital loss?

In my previous post I described a new IRS position on the treatment of losses in Ponzi schemes that will allow some taxpayer-victims to take theft losses instead of capital losses. I didn't say why that is useful.

The Internal Revenue Code allows an individual with a net capital loss to offset $3,000 of ordinary taxable income each year until that loss is exhausted. So, if a person had, for example, a $51,000 capital loss (and no capital gains), that loss would be deducted over 17 tax years.

On the other hand, a personal theft loss is immediately deductible (1) if the taxpayer itemizes deductions and (2) after taking away $100 and 10% of adjusted gross income. So, a taxpayer with, for example, $100,000 of other taxable income and a $51,000 theft loss, would have a $40,900 deduction in the year of the loss.

So which is better, deducting $3,000 per year for 17 years or deducting $40,900 immediately? That is up to the taxpayer who has been victimized by a Ponzi scheme.