Casualty and Theft Losses

If your property is destroyed, damaged, or stolen due to casualty or theft, you may be entitled to a tax deduction.

CASUALTY LOSSES

The damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, and unusual.

• Sudden.  Swift, not gradual or progressive. (Does not include damage from events such as termite infestation or deterioration from normal wind and weather.)
• Unexpected.  Not ordinarily unanticipated and unintended.
• Unusual.  Not a day–to–day occurrence and that is not typical of the activity in which you are engaged.

Examples of casualties include:

• Car accidents,
• Fires,
• Earthquakes,
• Hurricanes,
• Tornadoes,
• Floods, and
• Vandalism.

THEFT LOSSES

A theft is the taking and removing of property or money with the intent to deprive the owner of it. Lost or mislaid property is not considered a theft; you cannot deduct the loss.

INSURANCE

If your property is covered by insurance, file a timely insurance claim for reimbursement of the loss. Otherwise you cannot deduct this loss as a casualty or theft. This does not apply to the portion of the loss not covered by insurance.

You must reduce your loss by any reimbursement you receive or expect to receive, such as an insurance recovery.

AMOUNT OF LOSS

If business or income–producing property, such as rental property, is stolen or completely destroyed or lost because of a casualty, 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 improvements or depreciation.

To determine the amount of a casualty or theft loss of personal–use property, or of the personal-use portion 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 had to sell or buy and both knew all relevant facts. The amount of your loss is the lesser of:

To determine how much of the loss is deductible, if the property was held by you for personal use, or partly for personal use, you further reduce your loss by $100. This $100 reduction for personal use property applies to each casualty or theft event that occurred during the year, regardless of how many items of property are involved. The total of all your casualty and theft losses of personal use property 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 casualty or theft loss of personal use property.

For more information about the basis of property, refer to Publication 551, Basis of Assets.

If you believe that your loss qualifies as a casualty or theft loss, refer to Publication 547, Casualties, Disasters, and Thefts.

If many items of personal use property are involved, you may wish to refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook.

If many items of business use property are involved, you may wish to refer to Publication 584B, Business Casualty, Disaster or Theft Loss Workbook.