If you lose property through casualty or theft, you may be entitled to a tax deduction.
A casualty is the damage, destruction, or loss of property resulting from an identifiable
event that is sudden, unexpected, or unusual in nature.
A sudden event is one that is swift, not gradual or progressive. It does not include a
loss from such things as termite damage or deterioration from normal wind and weather.
An unexpected event is one that is ordinarily unanticipated, such as an earthquake,
hurricane, tornado, or flood.
An unusual event is one that is not a day-to-day occurrence and that is not typical of
the activity in which you are engaged. Other examples of casualties include car accidents,
fires, and vandalism.
A theft loss occurs when property or money is unlawfully taken. Lost or mislaid
property is not considered a theft loss.
If your property is covered by insurance, you cannot deduct a loss unless you file a
timely insurance claim for reimbursement. If business or income-producing property, such
as rental property, is completely destroyed or lost because of a casualty or theft, 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 various events such as improvements or
depreciation.
To determine the amount of a casualty or theft loss of personal-use property, or a loss
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 has to sell or buy and both know all relevant facts. The amount of your
loss is the lesser of:
- The decrease in fair market value as a result of the casualty; or
- Your adjusted basis in the property before the casualty or theft.
You must reduce your loss by any reimbursement you receive or expect to receive, such
as an insurance recovery. If the property was held by you for personal use, you further
reduce your loss by $100. This $100 reduction of a nonbusiness loss applies to each
casualty or theft that occurred during the year, regardless of how many items of property
are involved. The total of all your nonbusiness casualty and theft losses 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 nonbusiness casualty or theft
loss.
To claim a casualty or theft loss, you must complete Form 4684
and attach it to your return. A nonbusiness casualty or theft loss may be claimed only if
you itemize deductions on Schedule A, Form 1040. If your loss took
place in a declared disaster area, please refer to Topic 515.
If your property is damaged by a casualty, you must decrease its cost basis by the
amount of any insurance or other reimbursement that you receive and by the amount of any
deductible loss not covered by insurance. You increase the basis for amounts you spend
after a casualty to restore the damaged property.
For more information about the basis of property, refer to Topic
704, or refer to Publication 551, Basis of Assets.
If you believe that your loss qualifies as a casualty or theft loss, or if you have a
gain from a casualty or theft, please refer to Publication 547, Casualties,
Disasters, and Thefts (Business and Nonbusiness). If many items are involved, also
refer to Publication 584, Nonbusiness Disaster, Casualty, and Theft Loss Workbook.
To order publications call 1-800-829-3676 or download them from this web site.
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