Claiming Bank Deposit Losses

Yesterday two clients called me to ask about how the FDIC insurance works for covering their bank deposits. The basic idea is the federal government, through the Federal Deposit Insurance Corporation, will insure the safety of your bank deposits up to $100,000 per person per financial institution. Deposits over that $100,000 cap would be uninsured. In the wake of the IndyMac closure, people want to make sure that their bank deposits are safe and sound. You may want to move deposits over this $100,000 cap to a different bank as a way to make sure they are eligible for FDIC insurance.

And what if the worst happens and you do lose your money in the bank? You can deduct the loss on federally insured bank deposits as a casualty loss deduction. Casualty losses have limits built in and may be further reduced by the overall limitations on itemized deductions.

Because of these limitations on how much could be deducted, it would be safer to diversify deposits among multiple financial institutions to make sure the deposits are fully insured.

More information:

• Losses on bank deposits (from IRS Publication 529)
• Casualties, Disasters, and Thefts (IRS Publication 547)
• Frequently Asked Questions about Deposit Insurance (from the FDIC)