Figure the amount of your loss using the following steps.
- Determine your adjusted basis in the property before the casualty or theft.
- Determine the decrease in fair market value of the property as a result of the casualty or theft.
- From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.
For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss.
If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. taxmap/pub17/p17-140.htm#en_us_publink100034241
Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.
The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. taxmap/pub17/p17-140.htm#en_us_publink100034242
The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. taxmap/pub17/p17-140.htm#en_us_publink100034243
Several years ago, you purchased silver dollars at face value for $150. This is your adjusted basis in the property. Your silver dollars were stolen this year. The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Your theft loss is $150.taxmap/pub17/p17-140.htm#en_us_publink100034244
Recovered stolen property is your property that was stolen and later returned to you. If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Use this amount to refigure your total loss for the year in which the loss was deducted.
If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. But report the difference only up to the amount of the loss that reduced your tax. For more information on the amount to report, see Recoveries
in chapter 12.
To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. But other measures can also be used to establish certain decreases. taxmap/pub17/p17-140.htm#en_us_publink100034246
An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. The appraiser must recognize the effects of any general market decline that may occur along with the casualty. This information is needed to limit any deduction to the actual loss resulting from damage to the property.
Several factors are important in evaluating the accuracy of an appraisal, including the following.
- The appraiser's familiarity with your property before and after the casualty or theft.
- The appraiser's knowledge of sales of comparable property in the area.
- The appraiser's knowledge of conditions in the area of the casualty.
- The appraiser's method of appraisal.
You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. For more information on disasters, see Disaster Area Losses, in Pub. 547.
The cost of repairing damaged property is not part of a casualty loss. Neither is the cost of cleaning up after a casualty. But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions.
- The repairs are actually made.
- The repairs are necessary to bring the property back to its condition before the casualty.
- The amount spent for repairs is not excessive.
- The repairs take care of the damage only.
- The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.
The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. You may be able to measure your loss by what you spend on the following.
- Removing destroyed or damaged trees and shrubs minus any salvage you receive.
- Pruning and other measures taken to preserve damaged trees and shrubs.
- Replanting necessary to restore the property to its approximate value before the casualty.
Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. If your car is not listed in the books, determine its value from other sources. A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value.taxmap/pub17/p17-140.htm#en_us_publink100034250
You generally should not consider the following items when attempting to establish the decrease in FMV of your property.taxmap/pub17/p17-140.htm#en_us_publink100034251
The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. The amount you spend on insurance or to board up your house against a storm is not part of your loss.
If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. An example would be the cost of a dike to prevent flooding. taxmap/pub17/p17-140.htm#en_us_publink100034252
You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. See Disaster Area Losses in Publication 547.taxmap/pub17/p17-140.htm#en_us_publink100034253
Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. taxmap/pub17/p17-140.htm#en_us_publink100034254
The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. taxmap/pub17/p17-140.htm#en_us_publink100034255
Do not consider sentimental value when determining your loss. If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV. taxmap/pub17/p17-140.htm#en_us_publink100034256
A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. You have a loss only for actual casualty damage to your property. However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. taxmap/pub17/p17-140.htm#en_us_publink100034257
Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful.
Appraisals are used to figure the decrease in FMV because of a casualty or theft. See Appraisal
, earlier, under Figuring Decrease in FMV — Items To Consider
, for information about appraisals.
The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). For information about miscellaneous deductions, see chapter 28
Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. For more information, see chapter 13
If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. You do not have a casualty or theft loss to the extent you are reimbursed.
If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. You must reduce your loss even if you do not receive payment until a later tax year. See Reimbursement Received After Deducting Loss,
If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Otherwise, you cannot deduct this loss as a casualty or theft loss. However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). taxmap/pub17/p17-140.htm#en_us_publink100034261
You have a car insurance policy with a $500 deductible. Because your insurance did not cover the first $500 of an auto collision, the $500 would be deductible (subject to the deduction limits discussed later). This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible.taxmap/pub17/p17-140.htm#en_us_publink100034262
If your reimbursement is more than your adjusted basis in the property, you have a gain. This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. taxmap/pub17/p17-140.htm#en_us_publink100034263
The most common type of reimbursement is an insurance payment for your stolen or damaged property. Other types of reimbursements are discussed next. Also see the Instructions for Form 4684.taxmap/pub17/p17-140.htm#en_us_publink100034264
If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Take into consideration only the amount you used to replace your destroyed or damaged property. taxmap/pub17/p17-140.htm#en_us_publink100034265
Your home was extensively damaged by a tornado. Your loss after reimbursement from your insurance company was $10,000. Your employer set up a disaster relief fund for its employees. Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. You received $4,000 from the fund and spent the entire amount on repairs to your home. In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Your casualty loss before applying the deduction limits discussed later is $6,000. taxmap/pub17/p17-140.htm#en_us_publink100034266
If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. This applies even if you use the money to pay for repairs to property damaged in the disaster. taxmap/pub17/p17-140.htm#en_us_publink100034267
Your home was damaged by a hurricane. Relatives and neighbors made cash gifts to you that were excludable from your income. You used part of the cash gifts to pay for repairs to your home. There were no limits or restrictions on how you could use the cash gifts. Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. taxmap/pub17/p17-140.htm#en_us_publink100034268
You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations.
- You lose the use of your main home because of a casualty.
- Government authorities do not allow you access to your main home because of a casualty or threat of one.
If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Report this amount on Form 1040, line 21. However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. See Qualified disaster relief payments, under Disaster Area Losses in Publication 547.
A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Generally, these expenses include the amounts you pay for the following.
- Rent for suitable housing.
- Miscellaneous services.
Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one.
As a result of a fire, you vacated your apartment for a month and moved to a motel. You normally pay $525 a month for rent. None was charged for the month the apartment was vacated. Your motel rent for this month was $1,200. You normally pay $200 a month for food. Your food expenses for the month you lived in the motel were $400. You received $1,100 from your insurance company to cover your living expenses. You determine the payment you must include in income as follows.
|1)||Insurance payment for living|
|2)||Actual expenses during the month you are unable to use your home because of fire||1,600|| |
|3)||Normal living expenses||725|| |
|4)||Temporary increase in living |
expenses: Subtract line 3
from line 2
|5)||Amount of payment includible |
in income: Subtract line 4
from line 1
You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. taxmap/pub17/p17-140.htm#en_us_publink100034272
Your main home was destroyed by a tornado in August 2006. You regained use of your home in November 2007. The insurance payments you received in 2006 and 2007 were $1,500 more than the temporary increase in your living expenses during those years. You include this amount in income on your 2007 Form 1040. If, in 2008, you receive further payments to cover the living expenses you had in 2006 and 2007, you must include those payments in income on your 2008 Form 1040.taxmap/pub17/p17-140.htm#en_us_publink100034273
Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property.
Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. For more information, see Disaster Area Losses in Publication 547.
Disaster unemployment assistance payments are unemployment benefits that are taxable.
Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. See Disaster Area Losses in Publication 547.taxmap/pub17/p17-140.htm#en_us_publink100034275
If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. This section explains the adjustment you may have to make. taxmap/pub17/p17-140.htm#en_us_publink100034276
If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. taxmap/pub17/p17-140.htm#en_us_publink100034277
Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2007. The accident was due to the negligence of the other driver. At the end of 2007, there was a reasonable prospect that the owner of the other car would reimburse you in full. You did not have a deductible loss in 2007.
In January 2008, the court awarded you a judgment of $2,000. However, in July it became apparent that you will be unable to collect any amount from the other driver. You can deduct the loss in 2008 subject to the limits discussed later. taxmap/pub17/p17-140.htm#en_us_publink100034278
If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. You do not refigure your tax for the year you claimed the deduction. For more information, see Recoveries
in chapter 12.
You do not have to include the extra reimbursement in your income for the year you receive it if you make the choice discussed later under Individuals impacted by Hurricanes Katrina, Rita, and Wilma.
If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. See Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft.
If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. taxmap/pub17/p17-140.htm#en_us_publink100034281
In December 2008, you had a collision while driving your personal car. Repairs to the car cost $950. You had $100 deductible collision insurance. Your insurance company agreed to reimburse you for the rest of the damage. Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2008.
Due to the $100 rule (discussed later under Deduction Limits
), you cannot deduct the $100 you paid as the deductible. When you receive the $850 from the insurance company in 2009, do not report it as income.
If you claimed a casualty loss for damage to or destruction of your main home as a result of Hurricane Katrina, Rita, or Wilma, and in a later year you receive a qualified hurricane relief grant as reimbursement, you do not have to include the extra reimbursement in your income as explained earlier under Actual reimbursement more than expected. Instead, you can choose to file an amended return (Form 1040X) for the tax year in which you claimed the casualty loss deduction and reduce (but not below zero) the amount of the deduction by the amount of the grant. To qualify, the grant must have been issued under Public Law 109-148, 109-234, or 110-116. Qualified grants include the Louisiana Road Home Grant and the Mississippi Development Authority Hurricane Katrina Homeowner Grant. taxmap/pub17/p17-140.htm#en_us_publink1000107578
If you choose to file Form 1040X as discussed above, write "Hurricane Grant Relief" in dark, bold letters at the top of the form and attach the following items.
- Proof of the amount of the hurricane relief grant received.
- A completed Form 2848, Power of Attorney and Declaration of Representative, if you wish to designate a representative. (Do not attach if a valid Form 2848 is on file with the IRS.)
Do not include on Form 1040X any adjustments other than the reduction of the casualty loss deduction if the period of limitations on assessment is closed for the tax year for those adjustments.
If you previously filed an amended return for the casualty loss year that (1) reduced the previously claimed casualty loss deduction by the grant amount or (2) reported any of the grant amount as income, you must notify the IRS to receive the benefits described above. You must send the following documents to the IRS at the address given later.
- A copy of the previously filed Form 1040X, or submit a Form 843, Claim for Refund and Request for Abatement. These forms must include your own contact information as well as a properly executed Form 2848, if applicable.
- Copies of the original return for the year of the casualty loss deduction and any other amended returns for that year.
- Copies of the original return and amended returns, if any, for the year you received the grant if any portion of the grant was previously reported as income in the year you received it.
You must send these documents by the date given later under When to file Form 1040X
. The IRS will contact you or your representative, as appropriate, to discuss any necessary adjustments.
File Form 1040X and attachments by the later of:
- The due date for filing your tax return for the tax year in which you receive the grant (including extensions), or
- July 30, 2009.
Solely for purposes of determining whether you are eligible for the waiver of penalties and interest for purposes of the procedure discussed here, the IRS will treat any amended return filed before July 30, 2009, as filed on July 30, 2009.
Mail Form 1040X and attachments to the following address. taxmap/pub17/p17-140.htm#en_us_publink1000107582
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0255
To avoid interest and penalties, you must pay the balance due on Form 1040X within one year of the timely filing of that form. Payments made after you file Form 1040X should clearly designate that the payment is to be applied to reduce the balance due shown on the Form 1040X per IRS Notice 2008-95. The IRS will not take action to collect the balance due reflected on Form 1040X for the one year period following the filing of Form 1040X.taxmap/pub17/p17-140.htm#en_us_publink1000107583
After you file Form 1040X, the IRS immediately will assess the balance due resulting from the reduction in the casualty loss claimed. This assessment will be reflected on your account as an outstanding liability.taxmap/pub17/p17-140.htm#en_us_publink100034282taxmap/pub17/p17-140.htm#en_us_publink100034283
Personal property is 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 determine your total loss from that casualty or theft. taxmap/pub17/p17-140.htm#en_us_publink100034284
A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. You did not have fire insurance to cover your loss. (This was the only casualty or theft you had during the year.) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. The rug cost $3,000 and had an FMV of $2,500 just before the fire. You bought the table at an auction for $100 before discovering it was an antique. It had been appraised at $900 before the fire. You figure your loss on each of these items as follows:
| || ||Chair||Rug||Table|
|2)||FMV before fire||$500||$2,500||$900|
|3)||FMV after fire||–0–||–0–||–0–|
|4)||Decrease in FMV||$500||$2,500||$900|
|5)||Loss (smaller of (1) or |
| || || || || |
|6)||Total loss|| || ||$3,100|
In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. taxmap/pub17/p17-140.htm#en_us_publink100034286
You bought your home a few years ago. You paid $160,000 ($20,000 for the land and $140,000 for the house). You also spent $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 $200,000 before the fire, but only $30,000 after the fire. (The loss to your household furnishings is not shown in this example. It would be figured separately on each item, as explained earlier under Personal property.
) Shortly after the fire, the insurance company paid you $155,000 for the loss. You figure your casualty loss as follows:
|1)||Adjusted basis of the entire property (land, building, and landscaping)||$162,000|
|2)||FMV of entire property before fire||$200,000|
|3)||FMV of entire property after fire||30,000|
|4)||Decrease in FMV of entire |
|5)||Loss (smaller of (1) or (4))||$162,000|
|7)||Amount of loss after reimbursement||$7,000|taxmap/pub17/p17-140.htm#f10311g3902
Table 25-1. How To Apply the Deduction Limits for Personal-Use Property
| ||$100 Rule1||10% Rule2|
|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
(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.|
|1The $100 rule does not apply if your loss arose in the Kansas disaster area or a Midwestern disaster area (defined at the beginning of this chapter under What's New for 2008).|
2The 10% rule does not apply if your loss arose in the Kansas disaster area or a Midwestern disaster area. It also does not apply to a net disaster loss attributable to a federally declared disaster (defined at the beginning of this chapter under What's New for 2008).