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I had some funds held in trust by a financial company. Due to malfeasance customer funds went missing and the company went bankrupt. The bankruptcy is going through its course and it looks like the creditors such as myself will get back some fraction of their funds.
How do I treat this from a tax perspective? For example, let's say I get back 40% of my funds. Is the 60% I lost considered a deductible loss of some kind?
You use Form 4684.
Unfortunately, it doesn't flow through Schedule D to offset gains, but through Schedule A, itemized deductions. Depending on your current itemized total, some or all of your loss made not benefit you. (e.g. if you don't already itemize, you need to first pass the threshold for your filing status, $6350 single, $12,700 married.
In addition to the form JoeTaxpayer pointed you to, I recommend that you look at IRS publication 547 which includes instructions on how to obtain tax help for deducting losses. If the loss is greater than your income, you have a Net Operating Loss which can be carried forward to reduce your taxes in future years as well.
