skip navigation
Search Help
Navigation Help

Tax Map Index

Tax Reform
Tax Topic Index

Tax Topic Index

Affordable Care Act
Tax Topic Index

Exempt Organization
Tax Topic Index

Tax Topics

About Tax Map Website
Publication 17

Loss on Deposits(p186)

A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. If you incurred this type of loss, you can choose one of the following ways to deduct the loss.
You can no longer claim any miscellaneous itemized deductions, including the deduction for an ordinary loss on deposits in insolvent or bankrupt financial institutions.

Casualty loss.(p186)

You can choose to deduct a loss on deposits as a casualty loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. If you treat the loss as a casualty loss, you can’t treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Once you make this choice, you can’t change it without permission from the IRS.
Casualty loss limitation.(p186)
If you are an individual, casualty losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. An exception to the rule limiting the deduction for personal casualty and theft losses to federal casualty losses applies where you have personal casualty gains. Because a loss on deposits is not attributable to a federally declared disaster, you may deduct losses on deposits as personal casualty losses only to the extent they don’t exceed your personal casualty gains.

Nonbusiness bad debt.(p186)

If you don’t choose to claim the loss as a casualty loss for purposes of offsetting gains, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year.

How to report.(p186)

The kind of deduction you choose for your loss on deposits determines how you report your loss.

More information.(p186)

For more information, see Deposit in Insolvent or Bankrupt Financial Institution in Pub. 550.