This article is part 2 of a three-part series which discusses how to determine the amount of the loss for personal use and income producing property, amount deductible, and tax year for the deduction (part 1 can be found here). We will discuss gains, including deferring the gain for income producing property by purchasing replacement property-qualifying property, time period for replacement, realized and recognized gain, and basis of new property in the final installment.
Generally, you may claim an itemized deduction for any casualty and theft losses you suffered, but you must first determine the amount of the loss, and then figure the amount of the deduction.
To determine the amount of loss you need to do two calculations:
• You first must calculate the adjusted basis of your property. The adjusted basis is usually the original cost of the property plus the cost of improvements, minus depreciation, and any previous casualty losses claimed.
• You must then calculate the decrease in fair market value of the property caused by the Read More
Generally, you may claim an itemized deduction for any casualty and theft losses you suffered, relating to your home, household items, and vehicles. If your property was covered by insurance, you can deduct casualty and theft losses only if you filed a timely claim for reimbursement. Also, you must reduce the loss suffered, by the amount of any reimbursement you receive or expect to receive.
To be able to claim the deduction for the loss or damage to your property:
• You must first determine whether the loss has resulted from a casualty or theft under the IRS rules.
• You must complete Form 4684, Casualty and Thefts, to figure the amount of the loss, Read More
The Second Circuit’s recent remand of Alphonso, No. 11-2364-ag (2d Cir. 2/6/13), rev’g 136 T.C. 247 (2011) allows the Tax Court to consider perhaps the most controversial aspect of casualty loss deductions – the meaning of “sudden, unexpected, or unusual.”
Under Sec. 165(c), deductible personal losses (those not incurred in a trade or business or in a transaction entered into for profit) must arise from “fire, storm, shipwreck, or other casualty, or from theft.” The IRS and courts have generally restricted such other casualties to those like the named instances — identifiable events of a sudden, unexpected, or unusual nature or due to such causes (see, e.g., Matheson, 54 F.2d 537 (2d Cir. 1931)). Generally, courts have held that where the underlying cause of loss is progressive, such as rust and rot, gradual inundation or erosion, or insect infestation, resulting damage or destruction is not a casualty within the meaning of the statute, even when the damage or destruction becomes suddenly apparent. Thus, in Carlson, T.C. Memo. 1981-702, the Tax Court held that the collapse of a well did not qualify as a casualty loss because its cause was progressive deterioration of the supporting timber sidewalls.
In Alphonso, the Tax Court must make a factual determination whether the cause of a retaining wall’s collapse was sudden, unexpected, or unusual. Rev. Rul. 72 592 states that to be considered sudden, the event must be swift and precipitous, not gradual or progressive. An unexpected event is one that is ordinarily unanticipated, occurring Read More
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