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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