Insights

Are Casualty and Theft Losses Deductible?

Written by Marketing | 11/11/16 5:00 AM

Casualty and theft losses can be tax deductible but are hard to claim. 

First you need to determine what is a casualty loss?

 A casualty is incurred if you have damage, destruction, or loss of property resulting from any sudden, unexpected, or unusual event such as a car accident, flood, hurricane, tornado, fire, earthquake or vandalism.  A casualty loss does not include normal wear and tear or progressive deterioration.

A theft loss is the taking and removal of property or money with the intent to deprive the owner of it.  The theft must also be illegal under the law of the state where it occurred. 

A casualty loss is not deductible if caused by the following:

  • Accidental breakage of articles such as glassware or china

  • A family pet

  • A fire that you or someone else willfully set

  • A car accident if your or someone else willfully caused it

If the damage is to personal use property and not completely destroyed, the amount of your casualty is the lessor of:

  • The adjusted basis of your property, or

  • The decrease in fair market value of your property as a result of the casualty.

How do you claim the loss?

Normally you claim the loss as an itemized deduction on your individual form 1040 for the year the loss occurred.  For personal use property you must first reduce the loss by any insurance reimbursement.  Then you must subtract $100 form each casualty or event that occurred during the year.  Next you add these amounts for all losses and subtract 10% of your adjusted gross income.  The result is your allowable casualty and theft deduction.

If the loss is incurred from a federally declared disaster, you can treat the loss as having occurred in the prior year.  In that case, you can claim the loss on that return if not yet filed or amend the prior year return.  This way you can receive a quick refund. 

What records do you need to retain?

Since casually losses are a hot ticket for the IRS, be sure to retain the appropriate substantiating documents:

  • Documents showing ownership of the items that were damaged or stolen

  • Contracts or purchase receipts showing the original cost plus any improvements

  • Evidence of the property’s fair market value, such as insurance records, appraisals, or receipts for the cost of repairs

Be sure to contact our office at 1-866-287-9604 if you have any questions or need assistance in calculating your allowable losses.

Posted by Kim Gunther, CPA