In 1922, Ernest Hemingway was working as a reporter and living in bohemian poverty in Paris with his first wife, Hadley. The newlyweds rented a flat with no running water on the Rue du Cardinal Lemoine in the 5th arrondissement, and Ernest spent his evenings writing stories in nearby cafes like Les Deux Magots and La Closerie des Lilas. These were the Moveable Feast years when a lost generation of expat writers, including F. Scott Fitzgerald, Ezra Pound, and Gertrude Stein, created a brilliant salon for the ages.
That Christmas, Ernest was covering the Lausanne Peace Conference for a Toronto newspaper. He asked Hadley to join him there for the holiday. Hadley, who was sick at the time, clearly didn’t understand Marie Kondo or packing light. She brought everything, including a single suitcase stuffed with all of Ernest’s manuscripts–stories, drafts, notes for a future novel, and even carbon copies. At Gare du Lyon, a porter packed her bags into her compartment, and when Hadley ducked back into the station to buy a bottle of Evian, the suitcase with the manuscripts disappeared. Hadley cried for the entire eight-hour ride before confronting Ernest with the loss. At first, he laughed, telling her he had carbons of it all. But when he learned that even those were gone, the reality sank in that he would have to start it all from scratch.
When we’re confronted with losses, we can get a small measure of comfort by deducting it from our taxes. When Hemingway lost his suitcase, the income tax was just eight years old. Rates started at 4% and rose to 73% on incomes over $1 million ($30.9 million in 2023 dollars). Line 14 of Form 1040 lets taxpayers deduct “Losses by Fire, Storm, etc.” Surely, Ernest could have found some relief from Uncle Sam, right?
Unfortunately, the IRS doesn’t play “finders keepers, losers weepers” the same way as the rest of us. If you find something, it’s taxable. This includes the so-called “treasure trove.” In 1969, the Tax Court ruled in the case of an Ohio couple who bought a used piano and found $4,467 lurking inside. The judge noted that Code Section 61 provides that, “Gross income includes all income from whatever source derived.” Then he found there was no section excluding “cash hiding in a piano” from that definition.
If you lose something, though, it’s much harder to claim any sort of deduction. Casualty and theft losses used to be deductible as miscellaneous itemized deductions, to the extent they exceeded $100 plus 10% of your adjusted gross income. The Tax Cuts and Jobs Act of 2017 limits that deduction even further to losses attributable to a federally declared disaster. If Dorothy loses her house to a random tornado, and the President doesn’t sign the necessary declaration, Dorothy and Toto are out of luck! (Maybe the wizard can help?)
Complicating matters for Hemingway, he would have had to establish a value for his manuscripts. At the time, his fiction was just a side hustle, and he hadn’t published any of it. How do you assign a dollar amount to The Sun Also Rises before it actually rises? Do you discount that value for the personal messiness that leads to four marriages? How about the mental illness that likely contributed to his future suicide?
Life is an unpredictable journey. Sometimes, you find yourself on the “finders keepers” side of the ledger, and it’s good. Other times, you find yourself losing and weeping. Hemingway lost his suitcase but bounced back to one of the great careers in American letters. We’re here to help you do the same with your finances. Just don’t leave your tax plan out of sight at the station!