Publication 547 - Casualties,disasters,and Thefts

Table 2. Deduction Limit Rules for Personal-Use and Employee Property

$100 Rule

10% Rule

2% Rule

General Application

You must reduce each casualty or

You must reduce your total

theft loss by $100 when figuring

casualty or theft loss by 10% of

casualty or theft loss by 2% of

your deduction. Apply this rule to

your adjusted gross income.

personal-use property after you

Apply this rule to personal-use

Apply this rule to property you

have figured the amount of your

property after you reduce each

used in performing services as an

loss.

loss by $100 (the $100 rule).

employee after you have figured

the amount of your loss and

added it to your job expenses

and most other miscellaneous

itemized deductions.

Single Event

Apply this rule only once, even if

many pieces of property are

affected.

More Than One Event

Apply to the loss from each event.

Apply to the total of all your

losses from all events.

More Than One Person —

Apply separately to each person.

With Loss From the

Same Event

(other than a married couple

filing jointly)

Married Couple —

Filing

With Loss From the

Joint

Apply as if you were one person.

Same Event

Return

Filing

Separate

Apply separately to each spouse.

Return

More Than One Owner

Apply separately to each owner of

Apply separately to each owner

(other than a married

jointly owned property.

of jointly owned property.

couple filing jointly)

Example. Your personal car had an FMV of

is for the full $3,000 because you did not deduct

$2,000 when it was destroyed in a collision with

Deduction Limits

the loss on your return. The loss did not reduce

another car last year. The accident was due to

your tax.

the negligence of the other driver. At the end of

After you have figured your casualty or theft

If the total of all the reimbursements

the year, there was a reasonable prospect that

you receive is more than your adjusted

loss, you must figure how much of the loss you

the owner of the other car would reimburse you

basis in the destroyed or stolen prop-

CAUTION

can deduct.

in full. You did not have a deductible loss last

erty, you will have a gain on the casualty or

year.

The deduction for casualty and theft losses

theft. If you have already taken a deduction for a

of employee property and personal-use property

This January, the court awards you a judg-

loss and you receive the reimbursement in a

ment of $2,000. However, in July it becomes

is limited. A loss on employee property is subject

later year, you may have to include the gain in

apparent that you will be unable to collect any

to the 2% rule, discussed next. A loss on prop-

your income for the later year. Include the gain

amount from the other driver. Since this is your

erty you own for your personal use is subject to

as ordinary income up to the amount of your

only casualty or theft loss, you can deduct the

the $100 and 10% rules, discussed later. The

deduction that reduced your tax for the earlier

loss this year that is figured by applying the

2%, $100, and 10% rules are also summarized

deduction limits (discussed later).

year. You may be able to postpone reporting any

in Table 2.

remaining gain as explained under Postpone-

Losses on business property (other than em-

ment of Gain, later.

Actual reimbursement more than expected.

ployee property) and income-producing prop-

If you later receive more reimbursement than

erty are not subject to these rules. However, if

you expected, after you have claimed a deduc-

Actual reimbursement same as expected. If

your casualty or theft loss involved a home you

tion for the loss, you may have to include the

you receive exactly the reimbursement you ex-

used for business or rented out, your deductible

extra reimbursement in your income for the year

pected to receive, you do not have any amount

loss may be limited. See the instructions for

you receive it. However, if any part of the original

to include in your income or any loss to deduct.

deduction did not reduce your tax for the earlier

Section B of Form 4684. If the casualty or theft

year, do not include that part of the reimburse-

loss involved property used in a passive activity,

Example. Last December, you had a colli-

ment in your income. You do not refigure your

see Form 8582, Passive Activity Loss Limita-

sion while driving your personal car. Repairs to

tax for the year you claimed the deduction. See

tions, and its instructions.

Recoveries in Publication 525 to find out how

the car cost $950. You had $100 deductible

much extra reimbursement to include in income.

collision insurance. Your insurance company

2% Rule

agreed to reimburse you for the rest of the dam-

Example. Last year, a hurricane destroyed

age. Because you expected a reimbursement

The casualty and theft loss deduction for em-

your motorboat. Your loss was $3,000, and you

from the insurance company, you did not have a

ployee property, when added to your job ex-

estimated that your insurance would cover

casualty loss deduction last year.

penses and most other miscellaneous itemized

$2,500 of it. You did not itemize deductions on

deductions on Schedule A (Form 1040), must be

Due to the $100 rule, you cannot deduct the

your return last year, so you could not deduct the

reduced by 2% of your adjusted gross income.

$100 you paid as the deductible. When you

loss. When the insurance company reimburses

Employee property is property used in perform-

receive the $850 from the insurance company

you for the loss, you do not report any of the

reimbursement as income. This is true even if it

this year, do not report it as income.

ing services as an employee.

Page 6

Publication 547 - Casualties,disasters,and Thefts - 2002 Page 6

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