Theft Loss, help please

[jeff501]

Have a client who contracted with a builder in 2008 to build a log home for his personal residence. The contractor was paid several draws in both 2008 and 2009 but never delivered the materials nor did any preparation work such as grading, etc. My client has contacted a lawyer but there is little to no chance of ever recovering his investment.

Does anyone have much experience with Casualty and Theft losses? I've done casualty losses in the past for things but never a theft loss with such a large amount. Entered the amounts on Schedule A, Form 4684 for both 2008 and 2009 but a bit worried about an audit for my client even though everything can be proven. He lost $24,000 in 2008 and $20,000 in 2009 to this guy.

I've advised him that if by some small chance he ever collects anything that it will have to be claimed as income but he still wants me to file the losses. With his income he'll be able to recoup about $6,500 for the two years.

As always, I appreciate all your help. This board is great!

[Jiggers]

Be sure to document

Be sure to document everything. And get a copy of the police report. There should be one because this is a theft.

I had this happen to a client several years ago.

With not much to itemize, he didn't get a full deduction for the loss. But he did get some.

Then the law arrested the contractor, he went to trial and jail, with restitution to be made.

My client as recovered very little.

[dyne]

To claim a deduction the debt must be entirely worthless, meaning the debtor must
be dead, insolvent or bankrupt, etc. He should hire an attorney to sue the debtor.
If and when it becomes worthless he can claim the loss on schedule D as a SHORT-TERM
capital loss. When the Tucker Car Company went out of business in 1950, I believe; it
was 17 years before the debts regarding it could be deducted.