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.
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/p17-137.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.
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/p17-137.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.
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.
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/p17-137.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.
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/p17-137.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 2010. You regained use of your home in November 2011. The insurance payments you received in 2010 and 2011 were $1,500 more than the temporary increase in your living expenses during those years. You include this amount in income on your 2011 Form 1040. If, in 2012, you receive further payments to cover the living expenses you had in 2010 and 2011, you must include those payments in income on your 2012 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.
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/p17-137.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 2011. The accident was due to the negligence of the other driver. At the end of 2011, 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
2011.
In January 2012, 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 2012 subject to the
limits discussed later.
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.
 | 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 2012, 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 2012.
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 2013, 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 |
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/p17-137.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 |
Previous Page |
Table of Contents |
Index |
Next Page
