Tax immplications of unisured IndyMac deposits

My wife & I had deposits at the failed IndyMac bank in CA. As it now stands, ~$28,000 of our deposits was not insured, of which the FDIC is paying half, leaving us out ~$14,000. Assuming the FDIC is not able to sell the bank or it's assets before the end of the year (or EVER) to repay a meaningful amount of this loss, what are the tax implications? Can the 14K simply be handled as a capital loss, or is there a more favorable way to deal with it at tax time?

Thanks in advance,

Dan

Reply to
Dan
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See IRS Pub 550. The choice to claim an ordinary loss, subject to

2%-AGI limit, on schedule A is precluded since part of your deposit was federally insured.

The two remaining choices are to take a casualty loss, but that is reduced by 10% of your AGI (applied to the sum of all casualty losses) plus $100 for this incident, probably not helpful but at least you can do it this year.

Otherwise, wait until the final amount of the loss is known, and report it as a short-term capital loss.

-Mark Bole

Reply to
Mark Bole

As part of your deposits in IndyMac were insured, you can not take an ordinary loss (misc. itemized deduction) for the ~$14000.

You have two choices:

  1. Take a casualty loss in 2008 based on a reasonable estimate of the loss.
  2. Wait until you know the actual amount of the loss and deduct it as a nonbusiness bad debt (Schedule D, Short Term Loss).

Casualty losses are subject to the following: You first deduct $100 from each casualty incurred in the year. Then all casualties are subject to a floor of 10% of AGI. In other words, you only get to deduct the amount (after the $100 adjustment) that exceeds 10% of AGI.

The nonbusiness bad debt method, treats the loss as a short term capital loss once you know the actual value of the loss. First you offset short term losses against short term gains. Then you offset long term gains against long term losses. Then you add the two to eventually arrive at either a net capital gain or loss. If you have a net loss, you are limited to a maximum deduction of $3000 against your ordinary income. The balance of any unused capital loss (short & long) gets carried over to the next tax year.

See Pub 547 for more details on casualty losses. See Pub 550 for mored details on nonbusiness bad debts.

Reply to
Alan

Mark & Alan - Thank you for your replies.

Dan

Reply to
Dan

If your AGI is 100k, your loss of 14k amounts to a deduction of 3.9k, which is not very useful.

The deduction will be on the 2008 return, correct? However, the return can only be filed once bankruptcy court proceedings are finished, which can take years. So in this case, file your 2008 return without taking a loss, and amend it later. You have 7 years to amend a return for bad debt. If by January 2015 the court proceedings are not done, write to the IRS and ask them if they can extend the number of years you can take to file an amended return because court proceedings are not yet done. Since the amount of capital loss deductible on form 1040 is only 3k a year, with the remaining loss carried over to next year, you might need to file amended returns for roundup(14k/3k)=5 years, so keep your original records for 2008 to

2012. If married filing separately, the loss on 1040 is only 1.5k. In my opinion, the IRS pays pretty generous interest on amended returns.
Reply to
removeps-groups

No. Just like worthless stock, you wait until the year when you actually know the exact amount of the loss. No amendment should be needed.

-Mark Bole

Reply to
Mark Bole

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