Publication 547 - Casualties,disasters,and Thefts

Figuring the Deduction

or destroyed by a casualty, you must figure your

land. The FMV of the property (both building and

loss separately for each item of property. Then

land) immediately before the storm was

combine these separate losses to figure the total

$170,000 and its FMV immediately after the

Generally, you must figure your loss separately

loss. Reduce the total loss by $100 and 10% of

storm was $100,000. Your household furnish-

for each item stolen, damaged, or destroyed.

your adjusted gross income to figure the loss

However, a special rule applies to real property

ings were also damaged. You separately figured

deduction.

you own for personal use.

the loss on each damaged household item and

arrived at a total loss of $600.

Real property. In figuring a loss to real estate

Example 1. In August, a storm destroyed

You collected $50,000 from the insurance

you own for personal use, all improvements

your pleasure boat, which cost $18,500. This

company for the damage to your home, but your

(such as buildings and ornamental trees and the

was your only casualty or theft loss for the year.

household furnishings were not insured. Your

land containing the improvements) are consid-

Its FMV immediately before the storm was

adjusted gross income for the year the hurricane

ered together.

$17,000. You had no insurance, but were able to

occurred is $65,000. You figure your casualty

salvage the motor of the boat and sell it for $200.

loss deduction from the hurricane in the follow-

Example 1. In June, a fire destroyed your

Your adjusted gross income for the year the

ing manner.

lakeside cottage, which cost $144,800 (includ-

casualty occurred is $70,000.

ing $14,500 for the land) several years ago.

1. Adjusted basis of real property

Although the motor was sold separately, it is

(Your land was not damaged.) This was your

(cost in this example) . . . . . . .

$164,000

part of the boat and not a separate item of

only casualty or theft loss for the year. The FMV

2. FMV of real property before

property. You figure your casualty loss deduc-

of the property immediately before the fire was

hurricane . . . . . . . . . . . . . . .

$170,000

tion as follows.

$180,000 ($145,000 for the cottage and $35,000

3. FMV of real property after

1. Adjusted basis (cost in this

for the land). The FMV immediately after the fire

hurricane . . . . . . . . . . . . . . .

100,000

example) . . . . . . . . . . . . . . .

$18,500

was $35,000 (value of the land). You collected

4. Decrease in FMV of real

property (line 2 − line 3) . . . . .

$130,000 from the insurance company. Your

$70,000

2. FMV before storm . . . . . . . . .

$17,000

5. Loss on real property (smaller

adjusted gross income for the year the fire oc-

3. FMV after storm . . . . . . . . . .

200

of line 1 or line 4) . . . . . . . . .

$70,000

curred is $80,000. Your deduction for the casu-

4. Decrease in FMV

(line 2 − line 3) . . . . . . . . . . .

6. Subtract insurance . . . . . . . .

50,000

alty loss is $6,700, figured in the following

$16,800

7. Loss on real property after

manner.

5. Loss (smaller of line 1 or line 4)

$16,800

reimbursement . . . . . . . . . . .

$20,000

1. Adjusted basis of the entire

6. Subtract insurance . . . . . . . .

– 0 –

8. Loss on furnishings . . . . . . . .

$600

property (cost in this example)

$144,800

7. Loss after reimbursement . . . .

$16,800

9. Subtract insurance . . . . . . . .

– 0 –

2. FMV of entire property

8. Subtract $100 . . . . . . . . . . . .

100

10. Loss on furnishings after

before fire . . . . . . . . . . . . . .

$180,000

9. Loss after $100 rule . . . . . . . .

$16,700

reimbursement . . . . . . . . . . .

$600

3. FMV of entire property after fire

35,000

10. Subtract 10% of $70,000 AGI

7,000

4. Decrease in FMV of entire

11. Casualty loss deduction . . .

$9,700

11. Total loss (line 7 plus line 10)

$20,600

property (line 2 − line 3) . . . . .

$145,000

12. Subtract $100 . . . . . . . . . . . .

100

Example 2. In June, you were involved in an

13. Loss after $100 rule . . . . . . . .

$20,500

5. Loss (smaller of line 1 or line 4)

$144,800

auto accident that totally destroyed your per-

14. Subtract 10% of $65,000 AGI

6,500

6. Subtract insurance . . . . . . . .

130,000

sonal car and your antique pocket watch. You

15. Casualty loss deduction . . .

$14,000

7. Loss after reimbursement . . . .

$14,800

had bought the car for $30,000. The FMV of the

8. Subtract $100 . . . . . . . . . . . .

100

car just before the accident was $17,500. Its

9. Loss after $100 rule . . . . . . . .

$14,700

Property used partly for business and partly

FMV just after the accident was $180 (scrap

10. Subtract 10% of $80,000 AGI

8,000

for personal purposes. When property is

value). Your insurance company reimbursed

11. Casualty loss deduction . . .

$6,700

used partly for personal purposes and partly for

you $16,000.

business or income-producing purposes, the

Example 2. You bought your home a few

Your watch was not insured. You had pur-

casualty or theft loss deduction must be figured

years ago. You paid $150,000 ($10,000 for the

chased it for $250. Its FMV just before the acci-

separately for the personal-use portion and for

land and $140,000 for the house). You also

dent was $500. Your adjusted gross income for

the business or income-producing portion. You

spent an additional $2,000 for landscaping. This

the year the accident occurred is $97,000. Your

must figure each loss separately because the

year a fire destroyed your home. The fire also

casualty loss deduction is zero, figured as fol-

losses attributed to these two uses are figured in

lows.

damaged the shrubbery and trees in your yard.

two different ways. When figuring each loss,

The fire was your only casualty or theft loss this

Car

Watch

allocate the total cost or basis, the FMV before

year. Competent appraisers valued the property

1. Adjusted basis (cost) . . . $30,000

$250

and after the casualty or theft loss, and the

as a whole at $175,000 before the fire, but only

2. FMV before accident . . . $17,500

$500

insurance or other reimbursement based on the

$50,000 after the fire. Shortly after the fire, the

3. FMV after accident . . . .

180

– 0 –

use of the property. The $100 rule and the 10%

insurance company paid you $95,000 for the

4. Decrease in FMV (line 2 −

rule apply only to the casualty or theft loss on the

loss. Your adjusted gross income for this year is

line 3) . . . . . . . . . . . . . $17,320

$500

personal-use portion of the property.

$70,000. You figure your casualty loss deduc-

tion as follows.

5. Loss (smaller of line 1 or

Example. You own a building that you con-

line 4) . . . . . . . . . . . . . $17,320

$250

1. Adjusted basis of the entire

structed on leased land. You use half of the

6. Subtract insurance . . . .

16,000

– 0 –

property (cost of land, building,

building for your business and you live in the

7. Loss after reimbursement

$1,320

$250

and landscaping) . . . . . . . . .

$152,000

other half. The cost of the building was

2. FMV of entire property

8. Total loss . . . . . . . . . . . . . . . . .

$1,570

$400,000. You made no further improvements

before fire . . . . . . . . . . . . . .

$175,000

9. Subtract $100 . . . . . . . . . . . . . .

100

or additions to it.

3. FMV of entire property after fire

50,000

10. Loss after $100 rule . . . . . . . . . .

$1,470

A flood in March damaged the entire build-

4. Decrease in FMV of entire

11. Subtract 10% of $97,000 AGI . . .

9,700

property (line 2 − line 3)

ing. The FMV of the building was $380,000 im-

$125,000

12. Casualty loss deduction . . . . . .

– 0 –

mediately before the flood and $320,000

5. Loss (smaller of line 1 or line 4)

$125,000

afterwards. Your insurance company reim-

Both real and personal properties. When a

6. Subtract insurance . . . . . . . .

95,000

bursed you $40,000 for the flood damage. De-

casualty involves both real and personal proper-

7. Loss after reimbursement . . . .

$30,000

preciation on the business part of the building

ties, you must figure the loss separately for each

8. Subtract $100 . . . . . . . . . . . .

100

before the flood totaled $24,000. Your adjusted

type of property. However, you apply a single

9. Loss after $100 rule . . . . . . . .

$29,900

gross income for the year the flood occurred is

10. Subtract 10% of $70,000 AGI

7,000

$100 reduction to the total loss. Then, you apply

$125,000.

11. Casualty loss deduction . . .

$22,900

the 10% rule to figure the casualty loss deduc-

You have a deductible business casualty

tion.

Personal property. Personal property is gen-

loss of $10,000. You do not have a deductible

erally any property that is not real property. If

Example. In July, a hurricane damaged

personal casualty loss because of the 10% rule.

your personal property is stolen or is damaged

your home, which cost you $164,000 including

You figure your loss as follows.

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Publication 547 - Casualties,disasters,and Thefts - 2002 Page 8

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