In the iconic 1987 film Wall Street, Gordon Gekko declared, “Greed is good.” As it turns out, the IRS agrees—at least when it comes to tax deductions for victims of scams.
According to recent Federal Trade Commission data, Americans reported losing over $12.5 billion to fraud in 2024. Investment scams topped the charts, with $5.7 billion in losses. Elderly victims were hit especially hard. But in the eyes of the IRS, not all scams are treated equally.
If you’re wondering whether you can deduct your scam-related loss on your taxes, the answer is complicated—and a little heartless. Before 2017, personal theft losses, including those from fraud and larceny, were often deductible (subject to certain limits). But then came the Tax Cuts and Jobs Act (TCJA), which changed the rules dramatically.
Under the TCJA, from 2018 through 2025, personal theft losses are only deductible if they are the result of a federally declared disaster. So, unless your scammer came with a hurricane, you’re likely out of luck—unless you were trying to make money.
Here’s the twist: theft losses are still deductible if they involve business or profit-seeking activities. That means if you were scammed while investing, protecting your IRA, or otherwise trying to grow your wealth – whether out of greed or not – you may be able to deduct your loss. In tax terms, that’s a theft loss related to a transaction entered into for profit.
In 2023, the IRS Chief Counsel clarified the tax treatment of several modern scams:
⦁ Deductible: Losses from investment scams, phishing schemes targeting retirement accounts, or frauds involving hacked financial accounts—all potentially deductible because they involve the pursuit of profit.
⦁ Not Deductible: Romance scams, fake kidnapping ruses, or any scam where the victim sends money out of love, fear, or a desire to help someone—no deduction here. These are considered personal losses, and under TCJA rules, they’re non-deductible.
In short, the IRS takes the position that if your motivation was greed, your loss might be deductible. But if your motivation was love or compassion, you’re likely on your own.
It sounds absurd—but it’s just the result of a harsh rule combined with some tax logic. The good news is that the IRS has taken a relatively broad view of what qualifies as a for-profit transaction. So if you’ve been scammed, don’t assume your loss is a lost cause. Talk to a tax professional who can help determine whether your case meets the IRS’s deductibility standards.
Because when it comes to taxes, greed really is good.
For advice on whether your scam loss qualifies for the theft deduction, contact Saunders Tax & Accounting at http://www.saunderstax.com or call us at 301-714-2071. Open Monday – Thursday 9 am to 5 pm. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year” and Hagerstown Hotlist 2024, we have been providing a Less Taxing Life and More Prosperous Solutions since 1984!
