Publication 547 - Casualties,disasters,and Thefts

Separate computations. Generally, if a sin-

diately before a casualty or theft and

car is not listed in the books, determine its value

gle casualty or theft involves more than one item

immediately afterwards should be made by a

from other sources. A dealer’s offer for your car

of property, you must figure the loss on each

competent appraiser. The appraiser must rec-

as a trade-in on a new car is not usually a

item separately. Then combine the losses to

ognize the effects of any general market decline

measure of its true value.

determine the total loss from that casualty or

that may occur along with the casualty. This

theft.

information is needed to limit any deduction to

Figuring Decreases in FMV —

the actual loss resulting from damage to the

Exception for personal-use real property.

Items Not To Consider

property.

In figuring a casualty loss on personal-use real

Several factors are important in evaluating

property, the entire property (including any im-

You generally should not consider the following

the accuracy of an appraisal, including the fol-

provements, such as buildings, trees, and

items when attempting to establish the decrease

lowing.

shrubs) is treated as one item. Figure the loss

in FMV of your property.

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using the smaller of the following.

The appraiser’s familiarity with your prop-

Cost of protection. The cost of protecting

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erty before and after the casualty or theft.

The decrease in FMV of the entire prop-

your property against a casualty or theft is not

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erty.

The appraiser’s knowledge of sales of

part of a casualty or theft loss. The amount you

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comparable property in the area.

spend on insurance or to board up your house

The adjusted basis of the entire property.

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against a storm is not part of your loss. If the

The appraiser’s knowledge of conditions in

property is business property, these expenses

See Real property under Figuring the Deduc-

the area of the casualty.

are deductible as business expenses.

tion, later.

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The appraiser’s method of appraisal.

If you make permanent improvements to

your property to protect it against a casualty or

Decrease in

theft, add the cost of these improvements to

You may be able to use an appraisal

Fair Market Value

your basis in the property. An example would be

TIP

that you used to get a federal loan (or a

the cost of a dike to prevent flooding.

federal loan guarantee) as the result of

Fair market value (FMV) is the price for which

a Presidentially declared disaster to establish

you could sell your property to a willing buyer

Related expenses. The incidental expenses

the amount of your disaster loss. For more infor-

when neither of you has to sell or buy and both of

due to a casualty or theft, such as expenses for

mation on disasters, see Disaster Area Losses,

you know all the relevant facts.

the treatment of personal injuries, for temporary

later.

The decrease in FMV used to figure the

housing, or for a rental car, are not part of your

amount of a casualty or theft loss is the differ-

casualty or theft loss. However, they may be

Cost of cleaning up or making repairs. The

ence between the property’s fair market value

deductible as business expenses if the dam-

cost of repairing damaged property is not part of

immediately before and immediately after the

aged or stolen property is business property.

a casualty loss. Neither is the cost of cleaning up

casualty or theft.

Replacement cost. The cost of replacing sto-

after a casualty. But you can use the cost of

FMV of stolen property. The FMV of property

len or destroyed property is not part of a casualty

cleaning up or of making repairs after a casualty

immediately after a theft is considered to be zero

or theft loss.

as a measure of the decrease in FMV if you

since you no longer have the property.

meet all the following conditions.

Example. You bought a new chair 4 years

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The repairs are actually made.

Example. Several years ago, you pur-

ago for $300. In April, a fire destroyed the chair.

chased silver dollars at face value for $150. This

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You estimate that it would cost $500 to replace

The repairs are necessary to bring the

is your adjusted basis in the property. Your silver

it. If you had sold the chair before the fire, you

property back to its condition before the

dollars were stolen this year. The FMV of the

estimate that you could have received only $100

casualty.

coins was $1,000 just before they were stolen,

for it because it was 4 years old. The chair was

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The amount spent for repairs is not exces-

and insurance did not cover them. Your theft

not insured. Your loss is $100, the FMV of the

sive.

loss is $150.

chair before the fire. It is not $500, the replace-

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ment cost.

The repairs take care of the damage only.

Recovered stolen property. Recovered sto-

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len property is your property that was stolen and

Sentimental value. Do not consider senti-

The value of the property after the repairs

later returned to you. If you recovered property

mental value when determining your loss. If a

is not, due to the repairs, more than the

after you had already taken a theft loss deduc-

family portrait, heirloom, or keepsake is dam-

value of the property before the casualty.

tion, you must refigure your loss using the

aged, destroyed, or stolen, you must base your

smaller of the property’s adjusted basis (ex-

loss only on its FMV.

Landscaping. The cost of restoring land-

plained later) or the decrease in FMV from the

scaping to its original condition after a casualty

Decline in market value of property in or near

time just before it was stolen until the time it was

may indicate the decrease in FMV. You may be

casualty area. A decrease in the value of your

recovered. Use this amount to refigure your total

able to measure your loss by what you spend on

property because it is in or near an area that

loss for the year in which the loss was deducted.

the following.

suffered a casualty, or that might again suffer a

If your refigured loss is less than the loss you

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casualty, is not to be taken into consideration.

Removing destroyed or damaged trees

deducted, you generally have to report the dif-

You have a loss only for actual casualty damage

and shrubs, minus any salvage you re-

ference as income in the recovery year. But

to your property. However, if your home is in a

ceive.

report the difference only up to the amount of the

federally declared disaster area, see Disaster

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loss that reduced your tax. For more information

Pruning and other measures taken to pre-

Area Losses, later.

on the amount to report, see Recoveries in Pub-

serve damaged trees and shrubs.

lication 525.

Costs of photographs and appraisals. Pho-

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Replanting necessary to restore the prop-

tographs taken after a casualty will be helpful in

erty to its approximate value before the

establishing the condition and value of the prop-

Figuring Decrease in FMV — Items

casualty.

erty after it was damaged. Photographs showing

To Consider

the condition of the property after it was re-

Car value. Books issued by various automo-

paired, restored, or replaced may also be help-

To figure the decrease in FMV because of a

bile organizations that list your car may be useful

ful.

casualty or theft, you generally need a compe-

in figuring the value of your car. You can use the

Appraisals are used to figure the decrease in

tent appraisal. However, other measures also

books’ retail values and modify them by factors

FMV because of a casualty or theft. See Ap-

can be used to establish certain decreases. See

such as the mileage and condition of your car to

praisal, earlier, under Figuring Decrease in FMV

Appraisal and Cost of cleaning up or making

figure its value. The prices are not official, but

— Items to Consider, for information about ap-

repairs, next.

they may be useful in determining value and

praisals.

Appraisal. An appraisal to determine the dif-

suggesting relative prices for comparison with

The costs of photographs and appraisals

ference between the FMV of the property imme-

current sales and offerings in your area. If your

used as evidence of the value and condition of

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Publication 547 - Casualties,disasters,and Thefts - 2002 Page 4

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