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When To Report Gain or Loss

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If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone the gain as explained in Publication 547.

If you have a loss, see Table 27-2.

Loss on deposits. If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits, earlier.

Casualty loss. Generally, you can deduct a casualty loss only in the tax year in which the casualty occurred. This is true even if you do not repair or replace the damaged property until a later year.

Theft loss. You can generally deduct a theft loss only in the year you discover your property was stolen. You must be able to show that there was a theft, but you do not have to know when the theft occurred. However, you should show when you discovered that your property was missing.


Disaster Area Loss

If you have a casualty loss in a Presidentially declared disaster area, you can choose to deduct the loss on your tax return for either of the following years.

  1. The year the casualty occurred.
  2. The year immediately preceding the year the casualty occurred.

Table 27-1. How To Apply the Deduction Limits

  $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.


Table 27-2. When To Deduct a Loss

IF you have a loss... THEN deduct it in the year...
From a casualty, The loss occurred.
In a Presidentially declared disaster area, The disaster occurred or the year immediately before the disaster.
From a theft, The theft was discovered.
On a deposit treated as a:  
� Casualty, � A reasonable estimate can be made.
� Bad debt, � Deposits are totally worthless.
� Ordinary loss, � A reasonable estimate can be made.

Postponed tax deadlines. The IRS may postpone for up to 120 days certain tax deadlines of taxpayers who are affected by a Presidentially declared disaster. The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA.

If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB).

Who is eligible. If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement.

  • Any individual whose main home is located in a covered disaster area (defined later).
  • Any business entity or sole proprietor whose principal place of business is located in a covered disaster area.
  • Any relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area.
  • Any individual, business entity, or sole proprietor whose records are needed to meet a postponed deadline, provided those records are maintained in a covered disaster area. The main home or principal place of business does not have to be located in the covered disaster area.
  • Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area.
  • The spouse on a joint return with a taxpayer who is eligible for postponements.
  • Any other person determined by the IRS to be affected by a Presidentially declared disaster.

Covered disaster area. This is an area of a Presidentially declared disaster area in which the IRS has decided to postpone tax deadlines for up to 120 days.

Abatement of interest. In addition to postponing the tax deadlines, the IRS may grant an extension to file income tax returns and pay income tax. In this case, the IRS will abate the interest for the length of the extension period and for the length of any postponement.

More information. For more information, see Disaster Area Losses in Publication 547.

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