Can Stolen Cash Be a Deduction on Tax Returns?

Theft of property is a frustrating and traumatic occurrence for the victim. Not only are the fruits of labor taken away unjustly but the event instills in the wronged party a sense of helplessness. While property insurance can compensate for some stolen belongings, loss of cash is harder to recover. Because of its liquid nature, stolen money is often spent or laundered more than once within a very short time.

Sometimes the only hope for victims of cash theft is the possibility of a tax write-off. Unfortunately, obtaining a deduction for stolen cash is very difficult since the passage of the Jobs Tax Cuts and Jobs Act (TCJA) of 2017.

In this age of electronic transfers, cash still has a loyal following. Its tangible and finite nature makes spending too much on impulsive purchases less likely than with the use of cards and online payment platforms. The Massachusetts Institute of Technology discovered that cash users spent only half as much as those wielding credit cards. In addition, cash transactions involve less exposure to identity theft.

The drawback, however, is that once taken, cash is very difficult to retrieve. Still, cash fans insist the risk is worth it. As a rule, most people use a mix of cash and credit to pay for things.

​Read More​: Pros & Cons of Cash vs. Credit Cards

Cash can be traced, up to a point. Each bill, or note, is assigned an individual serial number of 11 characters, no matter the denomination: $1, $5, $10, $20, $50, $100, etc. This begins with a letter or letters indicating the year of issue and follows with a number unique to the note.

In addition, there's a Federal Reserve indicator signifying one of the 12 banks in the Federal Reserve System. There is also a letter-number combination that shows the actual position on the printer plate the bill was printed. These features, and others, give each note its own identity

This system of identifiable characteristics helps to keep track of money when it is created and moved to banks. It also helps when large cash shipments move from one bank to another. Problems arise, though, when cash circulates to individuals because they will spend it without notating serial numbers.

Likewise, retailers will accept it without recording serial numbers or other pertinent identifiers. So, while money taken from a bank is ascertainable, it becomes less so when spent and re-spent.

​Read More:​ Advantages of Using Cash

Before the passage of TCJA in 2017, there was a procedure for claiming stolen cash for exemption purposes as an itemized deduction. Like many other previously permitted itemizations, this has also been eliminated in favor of larger standard deductions.

In most cases, people do not carry around thousands of dollars or more in cash so the standard deduction is more than adequate in terms of savings. Still, if you itemize for other reasons and experience theft of cash, you are likely without recourse regarding a tax deduction for theft of money.

All income paid to you is taxable unless exempt. Stolen funds in the form of cash are no longer exempt, at least until 2026 when TCJA expires.

Does this mean never to use cash? Certainly not. It simply means that cash must be protected with great care.

Some businesses are cash businesses and can learn how to report business theft loss on a tax return. For a personal return, however, loss of cash to thieves is best dealt with on the prevention side, not the deduction side

​Read More:​ What Happens If Someone Steals My Money Order?