After you have figured your casualty or theft loss, you must figure
how much of the loss you can deduct.
The deduction for casualty and theft losses of employee property
and personal-use property is limited. A loss on employee property is
subject to the 2% rule, discussed next. A loss on property you own for
your personal use is subject to the $100 and 10% rules discussed
later. The $100 and 10% rules are also summarized in Table 2.
Table 2. Deduction Limit Rules for Personal-Use Property
| |
$100 Rule |
10% Rule |
| General Application |
You must reduce each casualty or theft
loss by $100 when figuring your deduction. Apply this rule after
you have figured the amount of your loss. |
You must reduce your total casualty
or theft loss by 10% of your adjusted gross income. Apply this rule
after you reduce each loss by $100 (the $100 rule). |
| Single Event |
Apply this rule only once, even if many
pieces of property are affected. |
Apply this rule only once, even if
many pieces of property are affected. |
| More Than One Event |
Apply to the loss from each event. |
Apply to the total of all your losses
from all events. |
| More Than One Person- With
Loss From the Same Event (other than a married
couple filing jointly) |
Apply separately to each person. |
Apply separately to each person. |
| Married Couple-
With Loss From the Same Event |
Filing Jointly |
Apply as if you were
one person. |
Apply as if you were
one person. |
| Filing Separately |
Apply separately to
each spouse. |
Apply separately to
each spouse. |
| More Than One Owner (other
than a married couple filing jointly) |
Apply separately to each owner of jointly
owned property. |
Apply separately to each owner of jointly
owned property. |
Losses on business property (other than employee property) and
income-producing property are not subject to these rules.
However, if your casualty or theft loss involved a home you used for
business or rented out, your deductible loss may be limited. See the
instructions for Section B of Form 4684. If the casualty or theft loss
involved property used in a passive activity, see Form 8582,
Passive Activity Loss Limitations, and its instructions.
2% rule.
The casualty and theft loss deduction for employee property, when
added to your job expenses and most other miscellaneous itemized
deductions on Schedule A (Form 1040), must be reduced by 2% of your
adjusted gross income. Employee property is property used in
performing services as an employee.
$100 Rule
After you have figured your casualty or theft loss on personal-use
property, as discussed earlier, you must reduce that loss by $100.
This reduction applies to each total casualty or theft loss. It does
not matter how many pieces of property are involved in an event. Only
a single $100 reduction applies.
Example.
You have $250 deductible collision insurance on your car. The car
is damaged in a collision. The insurance company pays you for the
damage minus the $250 deductible. The amount of the casualty loss is
based solely on the deductible. The casualty loss is $150 ($250
- $100) because the first $100 of a casualty loss on
personal-use property is not deductible.
Single event.
Generally, events closely related in origin cause a single
casualty. It is a single casualty when the damage is from two or more
closely related causes, such as wind and flood damage caused by the
same storm. A single casualty may also damage two or more pieces of
property, such as a hailstorm that damages both your home and your car
parked in your driveway.
Example 1.
A thunderstorm destroyed your pleasure boat. You also lost some
boating equipment in the storm. Your loss was $5,000 on the boat and
$1,200 on the equipment. Your insurance company reimbursed you $4,500
for the damage to your boat. You had no insurance coverage on the
equipment. Your casualty loss is from a single event and the $100 rule
applies once. Figure your loss before applying the 10% rule (discussed
later) as follows.
| | | Boat |
Equipment |
| 1. |
Loss |
$5,000 |
$1,200 |
| 2. |
Subtract insurance |
4,500 |
-0- |
| 3. |
Loss after reimbursement |
$500 |
$1,200 |
| 4. |
Total loss |
$1,700 |
| 5. |
Subtract
$100 |
100 |
| 6. |
Loss
before 10% rule |
$1,600 |
Example 2.
Thieves broke into your home in January and stole a ring and a fur
coat. You had a loss of $200 on the ring and $700 on the coat. This is
a single theft. The $100 rule applies to the total $900 loss.
Example 3.
In September, hurricane winds blew the roof from your home. Flood
waters caused by the hurricane further damaged your home and destroyed
your furniture and personal car. This is considered a single casualty.
The $100 rule is applied to your total loss from the flood waters and
the wind.
More than one loss.
If you have more than one casualty or theft loss during your tax
year, you must reduce each loss by $100.
Example.
Your family car was damaged in an accident in January. Your loss
after the insurance reimbursement was $75. In February, your car was
damaged in another accident. This time your loss after the insurance
reimbursement was $90. Apply the $100 rule to each separate casualty
loss. Since neither accident resulted in a loss of over $100, you are
not entitled to any deduction for these accidents.
More than one person.
If two or more individuals (other than a husband and wife filing a
joint return) have losses from the same casualty or theft, the $100
rule applies separately to each individual.
Example.
A fire damaged your house and also damaged the personal property of
your house guest. You must reduce your loss by $100. Your house guest
must reduce his or her loss by $100.
Married taxpayers.
If you and your spouse file a joint return, you are treated as one
individual in applying the $100 rule. It does not matter whether you
own the property jointly or separately.
If you and your spouse have a casualty or theft loss and you file
separate returns, each of you must reduce your loss by $100. This is
true even if you own the property jointly. If one spouse owns the
property, only that spouse can figure a loss deduction on a separate
return.
If the casualty or theft loss is on property you own as tenants by
the entirety, each of you can figure your deduction on only one-half
of the loss on separate returns. Neither of you can figure your
deduction on the entire loss on a separate return. Each of you must
reduce the loss by $100.
More than one owner.
If two or more individuals (other than a husband and wife filing a
joint return) have a loss on property jointly owned, the $100 rule
applies separately to each. For example, if two sisters live together
in a home they own jointly and they have a casualty loss on the home,
the $100 rule applies separately to each sister.
10% Rule
You must reduce the total of all your casualty or theft losses on
personal-use property by 10% of your adjusted gross income. Apply this
rule after you reduce each loss by $100. If you have both gains and
losses from casualties or thefts, see Gains and losses,
later in this discussion.
Example.
In June, you discovered that your house had been burglarized. Your
loss after insurance reimbursement was $2,000. Your adjusted gross
income is $29,500. Figure your theft loss as follows.
| 1. |
Loss after insurance |
$2,000 |
| 2. |
Subtract $100 |
100 |
| 3. |
Loss after $100 rule |
$1,900 |
| 4. |
Subtract 10% of $29,500
AGI |
$2,950 |
| 5. |
Theft loss
deduction |
-0- |
You do not have a theft loss deduction because your loss ($1,900)
is less than 10% of your adjusted gross income ($2,950).
More than one loss.
If you have more than one casualty or theft loss during your tax
year, reduce each loss by any reimbursement and by $100. Then you must
reduce the total of all your losses by 10% of your adjusted gross
income.
Example.
In March, you had a car accident that totally destroyed your car.
You did not have collision insurance on your car, so you did not
receive any insurance reimbursement. Your loss on the car was $1,200.
In November, a fire damaged your basement and totally destroyed the
furniture, washer, dryer, and other items you had stored there. Your
loss on the basement items after reimbursement was $1,700. Your
adjusted gross income is $25,000. You figure your casualty loss
deduction as follows.
| |
|
Car |
Basement |
| 1. |
Loss |
$1,200 |
$1,700 |
| 2. |
Subtract $100 per
incident |
100 |
100 |
| 3. |
Loss after $100 rule |
$1,100 |
$1,600 |
| 4. |
Total loss |
$2,700 |
| 5. |
Subtract 10%
of $25,000 AGI |
2,500 |
| 6. |
Casualty
loss deduction |
$200 |
Married taxpayers.
If you and your spouse file a joint return, you are treated as one
individual in applying the 10% rule. It does not matter if you own the
property jointly or separately.
If you file separate returns, the 10% rule applies to each return
on which a loss is claimed.
More than one owner.
If two or more individuals (other than husband and wife filing a
joint return) have a loss on property that is owned jointly, the 10%
rule applies separately to each.
Gains and losses.
If you have casualty or theft gains as well as losses to
personal-use property, you must compare your total gains to your total
losses. Do this after you have reduced each loss by any reimbursements
and by $100 but before you have reduced the losses by 10% of your
adjusted gross income.
Losses more than gains.
If your losses are more than your recognized gains, subtract your
gains from your losses and reduce the result by 10% of your adjusted
gross income. The rest, if any, is your deductible loss from
personal-use property.
Example.
Your theft loss after reducing it by reimbursements and by $100 is
$2,700. Your casualty gain is $700. Because your loss is more than
your gain, you must reduce your $2,000 net loss ($2,700 - $700)
by 10% of your adjusted gross income.
Gains more than losses.
If your recognized gains are more than your losses, subtract your
losses from your gains. The difference is treated as a capital gain
and must be reported on Schedule D (Form 1040). The 10% rule does not
apply to your losses.
Example.
Your theft loss is $600 after reducing it by reimbursements and by
$100. Your casualty gain is $1,600. Because your gain is more than
your loss, you must report the $1,000 net gain ($1,600 - $600)
on Schedule D.
More information.
For information on how to figure recognized gains, see
Figuring a Gain, later. Recognized gains do not include
gains you choose to postpone. See Postponement of Gain,
later.
Figuring the Deduction
Generally, you must figure your loss separately for each item
stolen, damaged, or destroyed. However, a special rule applies to real
property you own for personal use.
Real property.
In figuring a loss to real estate you own for personal use, all
improvements, such as buildings and ornamental trees, are considered
together.
Example 1.
In June, a fire destroyed your lakeside cottage, which cost
$144,800 (including $14,500 for the land) several years ago. (Your
land was not damaged.) This was your only casualty or theft loss for
the year. The FMV of the property immediately before the fire was
$180,000 ($145,000 for the cottage and $35,000 for the land). The FMV
immediately after the fire was $35,000 (value of the land). You
collected $130,000 from the insurance company. Your adjusted gross
income is $80,000. Your deduction for the casualty loss is $6,700,
figured in the following manner.
| 1. |
Adjusted basis of the
entire property (cost in this example) |
$144,800 |
| 2. |
FMV of entire property
before fire |
$180,000 |
| 3. |
FMV of entire property
after fire |
35,000 |
| 4. |
Decrease in FMV of entire
property (line 2 - line 3) |
$145,000 |
| 5. |
Loss (smaller of line 1 or
line 4) |
$144,800 |
| 6. |
Subtract insurance |
130,000 |
| 7. |
Loss after reimbursement |
$14,800 |
| 8. |
Subtract $100 |
100 |
| 9. |
Loss after $100 rule |
$14,700 |
| 10. |
Subtract 10% of $80,000
AGI |
8,000 |
| 11. |
Casualty loss
deduction |
$6,700 |
Example 2.
You bought your home a few years ago. You paid $150,000 ($10,000
for the land and $140,000 for the house). You also spent an additional
$2,000 for landscaping. This year a fire destroyed your home. The fire
also damaged the shrubbery and trees in your yard. The fire was your
only casualty or theft loss this year. Competent appraisers valued the
property as a whole at $175,000 before the fire, but only $50,000
after the fire. Shortly after the fire, the insurance company paid you
$95,000 for the loss. Your adjusted gross income is $70,000. You
figure your casualty loss deduction as follows.
| 1. |
Adjusted basis of the
entire property (cost of land, building, and landscaping) |
$152,000 |
| 2. |
FMV of entire property
before fire |
$175,000 |
| 3. |
FMV of entire property
after fire |
50,000 |
| 4. |
Decrease in FMV of entire property
(line 2 - line 3) |
$125,000 |
| 5. |
Loss (smaller of line 1 or
line 4) |
$125,000 |
| 6. |
Subtract insurance |
95,000 |
| 7. |
Loss after reimbursement |
$30,000 |
| 8. |
Subtract $100 |
100 |
| 9. |
Loss after $100 rule |
$29,900 |
| 10. |
Subtract 10% of $70,000
AGI |
7,000 |
| 11. |
Casualty loss
deduction |
$22,900 |
Personal property.
Personal property is generally any property that is not real
property. If your personal property is stolen or is damaged or
destroyed by a casualty, you must figure your loss separately for each
item of property. Then combine these separate losses to figure the
casualty loss deduction.
Example 1.
In August, a storm destroyed your pleasure boat, which cost
$18,500. This was your only casualty or theft loss for the year. Its
FMV immediately before the storm was $17,000. You had no insurance,
but were able to salvage the motor of the boat and sell it for $200.
Your adjusted gross income is $70,000.
Although the motor was sold separately, it is part of the boat and
not a separate item of property. You figure your casualty loss
deduction as follows.
| 1. |
Adjusted basis (cost in
this example) |
$18,500 |
| 2. |
FMV before storm |
$17,000 |
| 3. |
FMV after storm |
200 |
| 4. |
Decrease in FMV (line 2
- line 3) |
$16,800 |
| 5. |
Loss (smaller of line 1 or
line 4) |
$16,800 |
| 6. |
Subtract insurance |
-0- |
| 7. |
Loss after reimbursement |
$16,800 |
| 8. |
Subtract $100 |
100 |
| 9. |
Loss after $100 rule |
$16,700 |
| 10. |
Subtract 10% of $70,000
AGI |
7,000 |
| 11. |
Casualty loss
deduction |
$9,700 |
Example 2.
In June, you were involved in an auto accident that totally
destroyed your personal car and your antique pocket watch. You had
bought the car for $30,000. The FMV of the car just before the
accident was $17,500. Its FMV just after the accident was $180 (scrap
value). Your insurance company reimbursed you $16,000.
Your watch was not insured. You had purchased it for $250. Its FMV
just before the accident was $500. Your adjusted gross income is
$97,000. Your casualty loss deduction is zero, figured as follows.
| |
|
Car |
Watch |
| 1. |
Adjusted basis (cost) |
$30,000 |
$250 |
| 2. |
FMV before accident |
$17,500 |
$500 |
| 3. |
FMV after accident |
180 |
-0- |
| 4. |
Decrease in FMV (line 2
- line 3) |
$17,320 |
$500 |
| 5. |
Loss (smaller of line 1 or
line 4) |
$17,320 |
$250 |
| 6. |
Subtract insurance |
16,000 |
-0- |
| 7. |
Loss after reimbursement |
$1,320 |
$250 |
| 8. |
Total loss |
$1,570 |
| 9. |
Subtract
$100 |
100 |
| 10. |
Loss after
$100 rule |
$1,470 |
| 11. |
Subtract 10%
of $97,000 AGI |
9,700 |
| 12. |
Casualty
loss deduction |
-0- |
Both real and personal properties.
When a casualty involves both real and personal properties, you
must figure the loss separately for each type of property. But you
apply a single $100 reduction to the total loss. Then you apply the
10% rule.
Example.
In July, a hurricane damaged your home, which cost you $164,000
including land. The FMV of the property (both building and land)
immediately before the storm was $170,000 and its FMV immediately
after the storm was $100,000. Your household furnishings were also
damaged. You separately figured the loss on each damaged household
item and arrived at a total loss of $600.
You collected $50,000 from the insurance company for the damage to
your home, but your household furnishings were not insured. Your
adjusted gross income is $65,000. You figure your casualty loss
deduction from the hurricane in the following manner.
| 1. |
Adjusted basis of real
property (cost in this example) |
$164,000 |
| 2. |
FMV of real property before
hurricane |
$170,000 |
| 3. |
FMV of real property after
hurricane |
100,000 |
| 4. |
Decrease in FMV of real
property (line 2 - line 3) |
$70,000 |
| 5. |
Loss on real property
(smaller of line 1 or line 4) |
$70,000 |
| 6. |
Subtract insurance |
50,000 |
| 7. |
Loss on real property after
reimbursement |
$20,000 |
| 8. |
Loss on furnishings |
$600 |
| 9. |
Subtract insurance |
-0- |
| 10. |
Loss on furnishings after
reimbursement |
$600 |
| 11. |
Total loss (line 7 plus
line 10) |
$20,600 |
| 12. |
Subtract $100 |
100 |
| 13. |
Loss after $100 rule |
$20,500 |
| 14. |
Subtract 10% of $65,000
AGI |
6,500 |
| 15. |
Casualty loss
deduction |
$14,000 |
Property used partly for business and partly for personal
purposes.
When property is used partly for personal purposes and partly for
business or income-producing purposes, the casualty or theft loss
deduction must be figured separately for the personal-use portion and
for the business or income-producing portion. You must figure each
loss separately because the losses attributed to these two uses are
figured in two different ways. The $100 rule and the 10% rule apply
only to the casualty or theft loss on the personal-use portion of the
property.
Example.
You own a building that you constructed on leased land. You use
half of the building for your business and you live in the other half.
The cost of the building was $400,000. You made no further
improvements or additions to it.
A flood in March damaged the entire building. The FMV of the
building was $380,000 immediately before the flood and $320,000
afterwards. Your insurance company reimbursed you $40,000 for the
flood damage. Depreciation on the business part of the building before
the flood totaled $24,000. Your adjusted gross income is $125,000.
You have a deductible business casualty loss of $10,000. You do not
have a deductible personal casualty loss because of the 10% rule. You
figure your loss as follows.
| |
|
Business |
|
Personal |
| |
|
Part |
|
Part |
| 1. |
Cost (total $400,000) |
$200,000 |
|
$200,000 |
| 2. |
Subtract depreciation |
24,000 |
|
-0- |
| 3. |
Adjusted basis |
$176,000 |
|
$200,000 |
| 4. |
FMV before flood (total
$380,000) |
$190,000 |
|
$190,000 |
| 5. |
FMV after flood (total
$320,000) |
160,000 |
|
160,000 |
| 6. |
Decrease in FMV
(line 4 - line 5) |
$30,000 |
|
$30,000 |
| 7. |
Loss (smaller of line 3 or
line 6) |
$30,000 |
|
$30,000 |
| 8. |
Subtract insurance |
20,000 |
|
20,000 |
| 9. |
Loss after reimbursement |
$10,000 |
|
$10,000 |
| 10. |
Subtract $100 on
personal-use property |
-0- |
|
100 |
| 11. |
Loss after $100 rule |
$10,000 |
|
$9,900 |
| 12. |
Subtract 10% of $125,000
AGI on personal-use property |
-0- |
|
12,500 |
| 13. |
Deductible business
loss |
$10,000 |
|
|
| 14. |
Deductible personal
loss |
|
|
-0- |
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