J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

18.5 Bank Deposit Losses

If a bank or other financial institution in which you deposit funds fails and your loss is not covered by insurance, generally you may claim your loss either as a bad debt deduction or casualty loss. Alternatively, if none of the deposits were federally insured, an investment loss may be claimed. A casualty loss deduction may not be claimed for lost deposits in foreign financial institutions that are not organized and supervised under federal or state law. Neither the casualty loss nor the investment loss option is available to stockholders of the bank with more than a 1% interest, officers of the bank, or relatives of shareholders or officers.

Bad debt.

You may claim a bad debt deduction for a loss of a bank deposit in the year there is no reasonable prospect of recovery from the insolvent or bankrupt bank. You claim the loss as a short-term capital loss on Schedule D (Form 1040) unless the deposit was made in your business. A nonbusiness bad debt deduction is deductible from capital gains. If you do not have capital gains or the bad debt loss exceeds capital gains, only $3,000 of the loss may offset other income. The remaining loss is carried over. A lost deposit of business funds is claimed as a business bad debt (5.33).

Casualty loss.

You may elect to take a casualty loss deduction for the year in which the loss can be reasonably estimated. A loss of personal funds is subject to the $100/10% AGI floors for personal-use property losses (18.12). Once ...