If you lose property through casualty or theft, you may be entitled
to a tax deduction. A casualty is the damage, destruction, or loss of property
resulting from an identifiable event that is sudden, unexpected, or unusual
in nature.
A sudden event is one that is swift, not gradual or progressive.
It does not include a loss from such things as termite damage or deterioration
from normal wind and weather.
An unexpected event is one that is ordinarily unanticipated and unintended,
such as an earthquake, hurricane, tornado, or flood.
An unusual event is one that is not a day-to-day occurrence and that
is not typical of the activity in which you are engaged. Other examples
of casualties include car accidents, fires, and vandalism.
A theft loss occurs when property or money is unlawfully taken. Lost
or mislaid property is not considered a theft loss.
If your property is covered by insurance, you cannot deduct a loss
unless you file a timely insurance claim for reimbursement. If business
or income-producing property, such as rental property, is completely destroyed
or lost because of a casualty or theft, the amount of your loss is your
adjusted basis in the property minus any salvage value and insurance or
other reimbursement you receive or expect to receive. Adjusted basis is
usually your cost, increased or decreased by various events such as improvements
or depreciation.
To determine the amount of a casualty or theft loss of personal-use
property, or a loss of business or income-producing property that is used
partly for personal purposes, you must know the fair market value of your
property before and after the casualty. Fair market value is the price
for which you could have sold the property to a willing buyer if neither
of you has to sell or buy and both know all relevant facts. The amount
of your loss is the lesser of:
- The decrease in fair market value as a result of the casualty; or
- Your adjusted basis in the property before the casualty or theft.
You must reduce your loss by any reimbursement you receive or expect
to receive, such as an insurance recovery. If the property was held by
you for personal use, you further reduce your loss by $100. This $100 reduction
of a nonbusiness loss applies to each casualty or theft that occurred during
the year, regardless of how many items of property are involved. The total
of all your nonbusiness casualty and theft losses for the year must then
be reduced by 10% of your adjusted gross income. The balance that remains
after making these reductions is the amount of your deductible nonbusiness
casualty or theft loss.
To claim a casualty or theft loss, you must complete Form
4684, Casualties and Thefts, and attach it to your return. A
nonbusiness casualty or theft loss may be claimed only if you itemize deductions
on Schedule A of Form 1040.
If your loss took place in a declared disaster area, select Topic
515.
If your property is damaged by a casualty, you must decrease its
cost basis by the amount of any insurance or other reimbursement that you
receive and by the amount of any deductible loss not covered by insurance.
You increase the basis for amounts you spend after a casualty to restore
the damaged property.
For more information about the basis of property, select Topic
703, or see Publication 551,
Basis of Assets.
If you believe that your loss qualifies as a casualty or theft loss,
or if you have a gain from a casualty or theft, see Publication
547, Casualties, Disasters, and Thefts (Business and Nonbusiness).
If many items are involved, you may wish to order Publication 584, Nonbusiness
Disaster, Casualty, and Theft Loss Workbook.
If you have a casualty loss from a disaster that occurred in an area
declared by the President to be a federal disaster area, select Topic
515.
Publications can be downloaded
from this site, or ordered by calling 1-800-829-3676.
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