Vladimir Vladimirov | E+ | Getty Photographs
For victims of fraud, a second monetary blow generally comes their means — they owe taxes on the stolen cash.
Rip-off victims have confronted restrictions on whether or not they can declare their losses as a deduction on their tax return since 2018, as a consequence of a brief change below the Tax Cuts and Jobs Act of 2017. President Donald Trump’s “large stunning invoice” legislation enacted final yr made that change everlasting.
Whereas funding fraud losses could also be deductible, based on an IRS memorandum issued in March 2025, cash misplaced to different scams — comparable to impersonator or romance scams — shouldn’t be, specialists stated.
As well as, if the sufferer tapped a tax-deferred retirement account comparable to a conventional 401(ok) or particular person retirement account as a part of the fraud, revenue taxes could also be due on the distribution. And if the sufferer is youthful than age 59½, an early withdrawal penalty of 10% could also be imposed.
A bipartisan congressional invoice goals to alter the tax therapy of these losses. Referred to as the Tax Aid for Fraud Victims Act, H.R. 9500 would get rid of the deductibility restrictions and waive the ten% penalty if it applies, amongst different provisions.
“It’s extremely punitive not having the ability to declare a theft loss deduction,” stated Matthew Roberts, a tax legal professional and accomplice at Meadows Collier in Dallas.
The invoice was accredited by the Home Methods and Means Committee on July 1 with a vote of 39-0. It is unsure when or whether or not the total Home will contemplate the measure.
Reported fraud is up almost 430% since 2020
The sum of money misplaced to scams continues to develop, based on the Federal Commerce Fee. In 2025, customers reported $15.9 billion in fraud losses to the FTC — the very best on file and a rise of about 27% from $12.5 billion in 2024. Since 2020, reported losses have elevated almost 430%, based on the FTC.
Final yr, imposter scams ranked because the most reported kind of fraud, based on the FTC’s newest knowledge. Whereas 80% of the roughly 1 million who filed an imposter rip-off report did not lose cash, the opposite 20% misplaced a collective $3.5 billion, the FTC’s knowledge exhibits. Funding scams resulted within the largest reported losses, at greater than $7.9 billion.
The general development in fraud losses is pushed by a leap within the share of customers who say they have been scammed out of $100,000 or extra — a pattern most prevalent amongst adults age 60 and older, based on the FTC.
“That is typically as a result of retirement accounts are being cashed out,” stated Clark Flynt-Barr, AARP’s authorities affairs director for monetary safety.
In that age group, losses of six figures or extra amounted to $1.6 billion — 68% — of the $2.4 billion reported misplaced in 2024, based on the FTC’s 2025 annual report to Congress, launched in December.
How the legislation modified
Previous to 2018, taxpayers typically might declare itemized deductions for unreimbursed private casualty losses — comparable to from a climate occasion — and theft losses, topic to sure parameters comparable to solely having the ability to deduct the loss quantity exceeding 10% of the taxpayer’s revenue.
Nevertheless, the TCJA modified the principles by limiting the deductibility of such losses to these ensuing from a federally declared catastrophe. The supply, initially scheduled to use solely to tax years 2018 by way of 2025, was made everlasting final yr below the “large stunning invoice,” which additionally expanded eligibility to incorporate state-declared disasters.
Individually, quantities misplaced to funding scams could be deductible as a result of there was a revenue motive on the a part of the investor, which is handled otherwise below the theft-loss a part of the tax code, specialists stated.
“That is one other actually irritating a part of this entire situation,” Flynt-Barr stated. “Victims should be victims of the best kind of rip-off.”
Invoice would restore deduction, add different protections
The brand new invoice would get rid of the disaster-related limitation for each private casualty and theft losses.
“It reinstates the deduction to offer reduction to victims of fraud to allow them to deduct the quantity stolen from them, thereby mitigating nearly all of the tax penalties,” Flynt-Barr stated.
The invoice additionally would give victims extra flexibility by permitting taxpayers to deduct their theft losses for the tax yr wherein the losses have been incurred versus the yr the fraud was found. Beneath present legislation, if fraud is discovered to have occurred with cash that was taxed in a earlier yr, victims that qualify for a deduction typically should apply it to their revenue for the yr the fraud was found, Roberts stated.
“Many taxpayers who’re retired could not have taxable revenue in future years after the theft happens, notably the place they misplaced their retirement funds,” Roberts stated.
Along with waiving the ten% early withdrawal penalty in conditions the place it will in any other case apply, the invoice additionally would let victims extra simply exchange funds withdrawn from retirement accounts, which presently could be difficult as a consequence of contribution limits and different guidelines, specialists stated.
