Loss on Deposits A loss on deposits can occur when a bank, credit union, or otherfinancial institution becomes insolvent or bankrupt. If you incurredthis type of loss, you may be able to deduct the loss in one of threeways. cheap hotels in PortimaroAs a casualty loss. As an ordinary loss. ERROR MSGAs a nonbusiness bad debt. Sofia hotelsFor more information, see Special Treatment for Losses onDeposits in Insolvent or Bankrupt Financial Institutionshotels bed and breakfast Zrece in theinstructions for Form 4684. Casualty loss or ordinary loss.You can choose to deduct a loss on deposits as a casualty loss oras an ordinary loss for any year in which you can reasonably estimatehow much of your deposits you have lost in an insolvent or bankruptfinancial institution. The choice generally is made on the return youfile for that year and applies to all your losses on deposits for theyear in that particular financial institution. Once you treat the lossas a casualty or ordinary loss, you cannot treat the same amount ofthe loss as a nonbusiness bad debt when it actually becomes worthless. Nonbusiness bad debt.If you do not choose to deduct the loss as a casualty loss or as anordinary loss, you must wait until the actual loss is determinedbefore you can deduct the loss as a nonbusiness bad debt. Once youmake the choice, you cannot change it without permission from theInternal Revenue Service. How to report.The kind of deduction you choose for your loss on depositsdetermines how you report your loss. If you choose: Casualty loss--report it on Form 4684 first and then onSchedule A (Form 1040). Ordinary loss--report it on Schedule A (Form1040). ERROR MSGNonbusiness bad debt--report it on Schedule D (Form1040). More information.For more information, see Special Treatment for Losses onDeposits in Insolvent or Bankrupt Financial Institutions in theinstructions 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 theyear of recovery. If any part of the original deduction did not reduceyour tax in the earlier year, you do not have to include that part ofthe recovery in your income. For more information, see Recoveriesin Publication 525.