Casualty and Theft Losses
Casualty and theft losses are the unexpected loss of property.
Casualty and theft losses are deductible as an itemized
deduction.
A casualty occurs when your property is damaged as the result of
an identifiable event that is sudden, unexpected, and unusual.
- A sudden event is swift, not gradual or progressive.
- An unexpected event is unanticipated and unintended.
- An unusual event is not a normal day-to-day occurrence and is
not typical of the types of activities in which you engage.
A theft occurs when property is taken or removed with the intent
to deprive you of it. A theft is not mislaid or lost
property.
Insurance Coverage
If the property is covered by insurance, you must file a claim
for reimbursement of the loss.
If the property is covered and you do not file a claim, you
cannot deduct a casualty or theft loss for the property. The
portion of the property not covered by insurance is eligible to be
claimed for a deduction.
The amount of insurance deductible you must pay to receive
reimbursement is part of the total casualty or theft loss.
Amount of Loss
To determine the amount of loss, you must know the fair market
value (FMV) of the property before and after the loss and your
adjusted basis in the property. Fair market value can be determined
by the amount for which you could sell the property in its present
condition. Adjusted basis is usually what the item cost, increased
or decreased by events such as improvements, deterioration, or
depreciation.
The amount of the loss is the lesser of the decrease in FMV as
the result of the casualty or your adjusted basis in the property
before the casualty or theft.
You must reduce the amount of loss by any reimbursement you
receive, or expect to receive. Reimbursements include insurance
recovery.
Once the amount of loss is determined, the loss must be further
reduced by $100 if the property is personal. The $100 reduction for
personal property applies to each casualty or theft during the
year, regardless of how many items are involved in each
incident.
After the $100 reduction, you must further reduce the amount of
loss by 10% of your adjusted gross income (AGI). The balance
remaining after these two reductions is the deductible amount of
your loss.
For more information, please refer to
IRS Topic 515 - Casualty, Disaster, and Theft
Losses.
Victims of Ponzi Schemes
Beginning in 2009, the IRS allows a theft loss deduction and a
net operating loss carryback for losses from Ponzi investment
schemes. The special tax treatment must be claimed on Form 4684, and is available only to qualified
direct investors in a fraudulent scheme.
The deduction amount is equal up to 95% of the taxpayer's lost
investment, or 75% if the taxpayer is seeking recovery. The amount
of the deduction is reduced by any withdrawals the taxpayer
received from the investment, and by any recovered amounts.
For more information, see the Instructions for Form 4684.