Publication 547 |
2001 Tax Year |
Loss on Deposits
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.
- As a casualty loss.
- As an ordinary loss.
- As a nonbusiness bad debt.
Casualty loss or ordinary loss.
You can choose to deduct a loss on deposits as a casualty loss or
as an ordinary 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 generally is 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 or ordinary loss, you cannot treat the same amount of
the loss as a nonbusiness bad debt when it actually becomes worthless.
Once you make the choice, you cannot change it without permission from
the Internal Revenue Service.
Nonbusiness bad debt.
If you do not choose to deduct the loss as a casualty loss or as an
ordinary loss, you must wait until the actual loss is determined
before you can deduct the loss as a nonbusiness bad debt.
How to report.
The kind of deduction you choose for your loss on deposits
determines how you report your loss. See Table 1.
More information.
For more information, see Special Treatment for Losses on
Deposits in Insolvent or Bankrupt Financial Institutions in the
instructions for Form 4684.
Deducted loss recovered.
If you recover an amount you deducted as a loss in an earlier year,
you may have to include the amount recovered in your income for the
year of recovery. If any part of the original deduction did not reduce
your tax in the earlier year, you do not have to include that part of
the recovery in your income. For more information, see Recoveries
in Publication 525.
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