Fraud victims are dealt multiple financial blows if they take money out of their retirement account before 59½ years of age. What's worse, many financial losses resulting from scams aren't deductible on your tax return.
A new bill introduced by the House Ways and Means Committee would change that by allowing for more instances where scam victims can claim personal losses from theft on their taxes.
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Under current U.S. law, you can only potentially deduct personal losses incurred from a weather event or a scam if it's tied to an investment opportunity. That's because investment scams are deemed to be motivated by profit, so it works similarly to claiming losses from the sale of underperforming stocks.
However, no such exemptions exist for victims of romance or imposter scams. If a victim of a romance scam drains their 401(k) and sends it to the cybercriminal under false pretenses, it's not considered a for-profit move.
Not only would this individual need to pay income taxes on the distribution and replace those retirement funds over time, they would also be subjected to the IRS' 10% early withdrawal penalty.
Prior to 2018, taxpayers could claim itemized deductions for personal casualty losses — such as weather events, car accidents and vandalism — and theft losses like some scams. But President Donald Trump's Tax Cuts and Jobs Act limited such losses to those resulting from a federally declared disaster. The Big Beautiful Bill, passed in 2025, made those changes permanent, while also adding state-declared disasters as an exemption, according to CNBC.
The proposed measure in the House, the "Tax Relief for Fraud Victims Act," would eliminate those limitations for both personal casualty and theft losses. Scam victims would be able to deduct their loss to the extent it exceeds 10% of their adjusted gross income — and for more than just those tied to investment scams.
"It reinstates the deduction to provide relief to victims of fraud so they can deduct the amount stolen from them, thereby mitigating the majority of the tax consequences," Clark Flynt-Barr, AARP's government affairs director for financial security, told CNBC.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
