Publication 547 - Casualties, Disasters, And Thefts - Department Of Treasury - 2004 Page 8
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16Figuring 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
ings were also damaged. You separately figured
However, a special rule applies to real property
deduction.
the loss on each damaged household item and
you own for personal use.
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
2. FMV of real property before
only casualty or theft loss for the year. The FMV
property. You figure your casualty loss deduc-
hurricane . . . . . . . . . . . . . . .
$170,000
of the property immediately before the fire was
tion as follows.
3. FMV of real property after
$180,000 ($145,000 for the cottage and $35,000
hurricane . . . . . . . . . . . . . . .
100,000
1. Adjusted basis (cost in this
for the land). The FMV immediately after the fire
4. Decrease in FMV of real
example) . . . . . . . . . . . . . . .
$18,500
was $35,000 (value of the land). You collected
property (line 2 − line 3) . . . . .
$70,000
$130,000 from the insurance company. Your
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
6. Subtract insurance . . . . . . . .
50,000
(line 2 − line 3) . . . . . . . . . . .
alty loss is $6,700, figured in the following
$16,800
7. Loss on real property after
manner.
reimbursement . . . . . . . . . . .
$20,000
5. Loss (smaller of line 1 or line 4)
$16,800
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. Total loss (line 7 plus line 10)
$20,600
11. Casualty loss deduction . . .
$ 9,700
property (line 2 − line 3) . . . . .
$145,000
12. Subtract $100 . . . . . . . . . . . .
100
13. Loss after $100 rule . . . . . . . .
$20,500
Example 2. In June, you were involved in an
5. Loss (smaller of line 1 or line 4)
$144,800
14. Subtract 10% of $65,000 AGI
6,500
auto accident that totally destroyed your per-
6. Subtract insurance . . . . . . . .
130,000
15. Casualty loss deduction . . .
$ 14,000
sonal car and your antique pocket watch. You
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
Property used partly for business and partly
9. Loss after $100 rule . . . . . . . .
$14,700
FMV just after the accident was $180 (scrap
for personal purposes. When property is
10. Subtract 10% of $80,000 AGI
8,000
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
allocate the total cost or basis, the FMV before
Car
Watch
year. Competent appraisers valued the property
and after the casualty or theft loss, and the
1. Adjusted basis (cost) . . . $30,000
$250
as a whole at $175,000 before the fire, but only
insurance or other reimbursement between the
2. FMV before accident . . . $17,500
$500
$50,000 after the fire. Shortly after the fire, the
business and personal use of the property. The
3. FMV after accident . . . .
180
-0-
insurance company paid you $95,000 for the
$100 rule and the 10% rule apply only to the
4. Decrease in FMV (line 2 −
loss. Your adjusted gross income for this year is
casualty or theft loss on the personal-use por-
line 3) . . . . . . . . . . . . . $17,320
$500
$70,000. You figure your casualty loss deduc-
tion of the property.
tion as follows.
5. Loss (smaller of line 1 or
line 4) . . . . . . . . . . . . . $17,320
$250
Example. You own a building that you con-
1. Adjusted basis of the entire
6. Subtract insurance . . . .
16,000
-0-
structed on leased land. You use half of the
property (cost of land, building,
7. Loss after reimbursement
$1,320
$250
building for your business and you live in the
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
4. Decrease in FMV of entire
A flood in March damaged the entire build-
11. Subtract 10% of $97,000 AGI . . .
9,700
property (line 2 − line 3)
$125,000
ing. The FMV of the building was $380,000 im-
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.
Page 8
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