WHAT IS A CASUALTY LOSSES?

A loss caused by a sudden, unexpected event like a fire or storm can be tax deductible. To qualify, actual physical damage to property must occur, not simply a decline in the value of property. The loss can be any kind of property, either business or personal and generally only property belonging to the taxpayer will qualify.

UNEXPECTED, INDENTIFIABLE EVENT

A casualty loss occurs when there is property damage from a sudden, unanticipated event, NOT FROM GRADUAL, PROGERSSIVE DAMAGE. Some examples of qualifying events:

1. Act of Nature like hurricanes, tornadoes, floods, storms, and volcanic eruptions.
2. Shipwrecks, sonic booms.
3. Vandalism
4. Fires (except if set by the taxpayer). Smog, but only if caused by a sudden event, e.g., the escape of highly unusual toxic fume that cause damage to paint on a taxpayer's home, auto, etc. (Rev.... 72-560, 1971-2 CB 126)
5. Insolvency of a bank: Prior to TRA 86, lost deposits were always treated as bad debts and could be deducted only in the year the taxpayer determined no recovery was possible. Effective for tax years AFTER 1982, taxpayers can elect to treat lost deposits as EITHER casualties OR bad debts. The election is not available to the insolvent bank officers, owners (awning 1% or more), or certain relatives of these owners. The loss may be recognized in the year it can be reasonably estimated, OR it can be claimed in a later year when it is determined no recovery is possible.
6. Car and other accidents (but not if due to willful negligence of taxpayer or if due to breakage under normal conditions).
7. Theft, including burglary, embezzlement and other unlawful acts. Merely losing property is not can idered theft, but if the disappearance of the property accompanies an unexpected event, a casualty could result.
8. Damage from insects or drought will normally NOT qualify. But IRS says that a sudden, unexpected, or unusual infestation by beetles or other insects may result in a casualty loss. (Your Federal Income Tax, (2006 edition, page 158)
9. Terrorist attacks.

$100/10% IN F....

1. Reduce the casualty amount by $100 for each event.
2. After combining all personal casualty occurrences for the year, reduce the total by 10% of adjusted gross income.

Example: Personal Casualty Loss Computations - Andy's car (which cost $5,000) was .... in an accident. The fair market value at the time of the accident was 43,500. Andy had no collision insurance and his AGI for the year was $25,000.