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Casualty and Theft Losses in general

Summary:

Taxpayers may deduct casualty and theft losses on your federal income tax return. 

Generally, this include losses relating to your home, household items, and vehicles.

However, reimbursement you get from your insurance company are deducted form your loss. 

Losses can be deduct in the year of the loss or in the receding year (i.e., for federally declared Disaster Zones by the President of the U.S.A.)

What is considered a Casualty Loss?

A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.

What happens if the property is not completely destroyed?

For personal-use property- the amount of your casualty loss is the lesser of:

• The adjusted basis of your property, or
• The decrease in fair market value of your property as a result of the casualty

For business or income-producing property (e.g., rental property), and the property is completely destroyed, then the amount of your loss is your adjusted basis. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation

What happens if I get a reimbursement(s)?

You must reduce the loss by any salvage value and by any insurance or other reimbursement you receive or expect to receive. 

You may determine the decrease in fair market value by appraisal, or if certain conditions are met, by the cost of repairing the property. 

Where did you go about claiming your losses?

Individuals are required to claim their casualty and theft losses as an itemized deduction on Form 1040, Schedule A (PDF), Itemized Deductions, (or Schedule A in Form 1040NR (PDF), if you're a nonresident alien).

Report casualty and theft losses on Form 4684 (PDF), Use Section A for personal-use property and Section B for business or income-producing property. 

What year you be deducting your losses?

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the casualty loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. 

What happens when my loss is greater than my income? 

In that case, you may have a net operating loss (NOL). 

Suggest hire an CPA because the terminology and details can get complicated.

General Information Required to declare to the IRS (See IRS Form 4684)- not all inclusive.

1- description of the property

2- date acquired

3-type of property

4-property damaged/partially damaged

5-location of the property

6-cost or basis

7-insurance reimbursement(s)

8-FMV before and after the loss

9-income producing property or personal use

10-Other information

SOURCE: IRS.GOV