My wife and I recently found out that my mother-in-law was about to loss her home to foreclosure because she had been sending money to various people throughout the U.S. under the pretense of selling her timeshares. This has been going on since about 2012 to the tune of $250K-$300K. As a result of the loss, her current income is less then $30K/ yr and she is indebt to the IRS for around $25K because she depleted her retirement to pay for this scam. I've read the instructions for IRS Pub. 4684, which as I understand it, will only allow her to claim a deduction up to her current year's income of $30K. This is almost as bad as what has already happen. My question is, can my wife and I start to claim my mother-in-law as a dependent on our taxes, since we already supplement most of her bills, and still file form 4684 and claim the deductions up to our combined income, which would then be $130K/ yr?

Best regards,

Bart

My wife and I recently found out that my mother-in-law was about to loss her home to foreclosure because she had been sending money to various people throughout the U.S. under the pretense of selling her timeshares. This has been going on since about 2012 to the tune of $250K-$300K. As a result of the loss, her current income is less then $30K/ yr and she is indebt to the IRS for around $25K because she depleted her retirement to pay for this scam. I've read the instructions for IRS Pub. 4684, which as I understand it, will only allow her to claim a deduction up to her current year's income of $30K. This is almost as bad as what has already happen. ==========è>>>>>>It deepens; as long as your MIL’s losses may be classified as theft - she may deduct them on her return; She may be able to deduct some of her losses against your income. She needs to figure her loss in Section B of Form 4684. Your MIL deducts fraud losses in the same manner as theft losses;however, there are specific elements of a theft loss that must be satisfied to claim a tax deduction and, even then, the way the law computes the deduction is not favorable for your MIL.Many elderly taxpayers use the standard deduction and do not itemize deductions. If your father does not itemize deductions, any benefit of the theft loss is unavailable. Her income (loss), not yours.