Publication 17
taxmap/pub17/p17-137.htm#en_us_publink1000173552Figure 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 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/p17-137.htm#en_us_publink1000235001If 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/p17-137.htm#en_us_publink1000236076Fair 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/p17-137.htm#en_us_publink1000236077The FMV of property immediately after a theft is considered to
be zero, since you no longer have the property.
taxmap/pub17/p17-137.htm#en_us_publink1000236078Several 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/p17-137.htm#en_us_publink1000236079Recovered 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. However, other measures can also be
used to establish certain decreases.
taxmap/pub17/p17-137.htm#en_us_publink1000236082An 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.
|
taxmap/pub17/p17-137.htm#en_us_publink1000236084The 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/p17-137.htm#en_us_publink1000236087You generally should not consider the following items when attempting
to establish the decrease in FMV of your property.
taxmap/pub17/p17-137.htm#en_us_publink1000236088The 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/p17-137.htm#en_us_publink1000236089You 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/p17-137.htm#en_us_publink1000236090Any 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/p17-137.htm#en_us_publink1000236091The cost of replacing stolen or destroyed property is not part
of a casualty or theft loss.
taxmap/pub17/p17-137.htm#en_us_publink1000236092Do 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/p17-137.htm#en_us_publink1000236093A 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/p17-137.htm#en_us_publink1000236094
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, later.
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/p17-137.htm#en_us_publink1000173580You have a car insurance policy with a $1000 deductible. Because
your insurance did not cover the first $1000 of an auto collision, the $1000
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/p17-137.htm#en_us_publink1000173582The 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/p17-137.htm#en_us_publink1000173583If 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/p17-137.htm#en_us_publink1000173584Your 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/p17-137.htm#en_us_publink1000173585If 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/p17-137.htm#en_us_publink1000173586Your 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/p17-137.htm#en_us_publink1000173587You 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.
- Transportation.
- Food.
- Utilities.
- 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
expenses
| $1,100 |
| 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
| 875 |
| 5) | Amount of payment includible
in income: Subtract line 4
from line 1
| $ 225 |
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/p17-137.htm#en_us_publink1000173592Your main home was destroyed by a tornado in August 2008. You
regained use of your home in November 2009. The insurance payments you received
in 2008 and 2009 were $1,500 more than the temporary increase in your living
expenses during those years. You include this amount in income on your 2009 Form
1040. If, in 2010, you receive further payments to cover the living expenses you
had in 2008 and 2009, you must include those payments in income on your 2010
Form 1040.
taxmap/pub17/p17-137.htm#en_us_publink1000173593Food, 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/p17-137.htm#en_us_publink1000173595If 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/p17-137.htm#en_us_publink1000173596If 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/p17-137.htm#en_us_publink1000173597Your personal car had an FMV of $2,000 when it was destroyed
in a collision with another car in 2009. The accident was due to the negligence
of the other driver. At the end of 2009, 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 2009.
In January 2010, 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 2010 subject to the
limits discussed later.
taxmap/pub17/p17-137.htm#en_us_publink1000173598If 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.
 | 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.
|
taxmap/pub17/p17-137.htm#en_us_publink1000173602If 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/p17-137.htm#en_us_publink1000173603In December 2010, 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 2010.
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 2011, do not report it as
income.
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 figure the total loss from that casualty or theft.
taxmap/pub17/p17-137.htm#en_us_publink1000173614A 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 |
| 1) | Basis (cost) | $750 | $3,000 | $100 |
| 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
(4))
| $500 | $2,500 | $100 |
| | | | | |
| 6) | Total loss | | | $3,100 |
taxmap/pub17/p17-137.htm#en_us_publink1000173616In 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/p17-137.htm#en_us_publink1000173617You 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
property
| $170,000 |
| 5) | Loss (smaller of (1) or (4)) | $162,000 |
| 6) | Subtract insurance | 155,000 |
| 7) | Amount of loss after reimbursement | $7,000 |
taxmap/pub17/p17-137.htm#en_us_publink1000173619
Table 25-1. How To Apply the Deduction Limits 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. |
| *The 10% rule does not apply to a net disaster loss from
a disaster declared a federal disaster in tax years beginning after 2007 that
occurred before 2010.
|
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