A casualty and theft loss is a deduction allowed on tax returns for people who suffer property damage or theft. Here’s how the IRS defines a “casualty event”:
A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.
- A sudden event is one that is swift, not gradual or progressive.
- An unexpected event is one that is ordinarily unanticipated and unintended.
- An unusual event is one that is not a daytoday occurrence and that is not typical of the activity in which you were engaged.
From IRS Publication 547
Examples include car crashes, floods, fires, storms (such as tornadoes, hurricanes, hail, strong winds, etc.), vandalism, and robberies.
Examples of things that don’t count are:
- Accidental breakage of something, such as accidentally dropping an expensive heirloom; damage caused by the family pet; progressive deterioration; car crashes if the accident is due to your own negligence; and fires that you set intentionally.
The mechanics of how the deduction is calculated are too deep for this post. In general, the amount of loss is limited to the smaller of:
- Your basis in the property (for non-business property, this will generally be what you originally paid), or
- The decrease in market value of the property after the storm vs. before the storm
The loss amount is reduced by any insurance reimbursements you received.
For individuals, further limitations apply. Once you’ve figured out the amount of loss, you calculate the deductible amount by:
- Reducing the loss amount by $100, and
- Reducing the loss amount again, this time by 10% of your adjusted gross income
Casualty and theft losses are claimed as an itemized deduction.
For more tax terms, visit the Glossary page on this website.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”