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Publication 17
Your Federal Income Tax

For Individuals

For use in preparing 2002 Returns

Single Casualty on Multiple Properties

Personal property.   If a single casualty or theft involves more than one item of personal property, you must figure the loss on each item separately. Then combine the losses to determine your total loss from that casualty or theft. Personal property is any property that is not real property.

Example.   A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. You did not have fire insurance to cover your loss. (This was the only casualty or theft you had during the year.) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. The rug cost $3,000 and had an FMV of $2,500 just before the fire. You bought the table at an auction for $100 before discovering it was an antique. It had been appraised at $900 before the fire. You figure your loss on each of these items as follows:

Chair Rug Table
1) Basis (cost) $750 $3,000 $100
2) FMV before fire $500 $2,500 $900
3) FMV after fire -0- -0- -0-
4) Decrease in FMV $500 $2,500 $900
5) Loss (smaller of (1) or (4)) $500 $2,500 $100
6) Total loss $3,100

Real property.   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property.

Example.   You bought your home a few years ago. You paid $160,000 ($20,000 for the land and $140,000 for the house). You also spent $2,000 for landscaping. This year a fire destroyed your home. The fire also damaged the shrubbery and trees in your yard. The fire was your only casualty or theft loss this year. Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. (The loss to your household furnishings is not shown in this example. It would be figured separately on each item, as explained earlier under Personal property.) Shortly after the fire, the insurance company paid you $155,000 for the loss. You figure your casualty loss as follows:

1) Adjusted basis of the entire property (land, building, and landscaping) $162,000
2) FMV of entire property before fire $200,000
3) FMV of entire property after fire 30,000
4) Decrease in FMV of entire property $170,000
5) Loss (smaller of (1) or (4)) $162,000
6) Subtract insurance 155,000
7) Amount of loss after reimbursement $7,000

Deduction Limits

After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss.

  1. You must reduce each casualty or theft loss by $100 ($100 rule).
  2. You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule).

You make these reductions on Form 4684.

These rules are explained next and Table 27-1 summarizes how to apply the $100 rule and the 10% rule in various situations. For more detailed explanations and examples, see Publication 547.

Property used partly for business and partly for personal purposes.   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property.

$100 Rule

After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. This reduction applies to each total casualty or theft loss. It does not matter how many pieces of property are involved in an event. Only a single $100 reduction applies.

Example.   A hailstorm damages your home and your car. Determine the amount of loss, as discussed earlier, for each of these items. Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100.

Single event.   Generally, events closely related in origin cause a single casualty. It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm.

10% Rule

You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Apply this rule after you reduce each loss by $100. If you have both gains and losses from casualties or thefts, see Gains and losses, later in this discussion.

Example 1.   In June, you discovered that your house had been burglarized. Your loss after insurance reimbursement was $2,000. Your adjusted gross income for the year you discovered the theft is $29,500. You first apply the $100 rule and then the 10% rule. Figure your theft loss deduction as follows.

1) Loss after insurance $2,000
2) Subtract $100 100
3) Loss after $100 rule $1,900
4) Subtract 10% × $29,500 AGI 2,950
5) Theft loss deduction -0-

You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950).

Example 2.   In March, you had a car accident that totally destroyed your car. You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Your loss on the car was $1,200. In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Your loss on the basement items after reimbursement was $1,700. Your adjusted gross income for the year that the accident and fire occurred is $25,000. You figure your casualty loss deduction as follows.

Car  Basement
1) Loss $1,200 $1,700
2) Subtract $100 per incident 100 100
3) Loss after $100 rule $1,100 $1,600
4) Total loss $2,700
5) Subtract 10% × $25,000 AGI 2,500
6) Casualty loss deduction $200

Gains and losses.   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Do this after you have reduced each loss by any reimbursements and by $100.

Casualty or theft gains do not include gains you choose to postpone. See Publication 547 for information on the postponement of gain.

Losses more than gains.   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. The rest, if any, is your deductible loss.

Gains more than losses.   If your recognized gains are more than your losses, subtract your losses from your gains. The difference is treated as capital gain and must be reported on Schedule D (Form 1040). The 10% rule does not apply to your losses.

When To Report
Gain or Loss

If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547.

If you have a loss, see Table 27-2.

Loss on deposits.   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits, earlier.

Casualty loss.   Generally, you can deduct a casualty loss only in the tax year in which the casualty occurred. This is true even if you do not repair or replace the damaged property until a later year.

Theft loss.   You generally can deduct a theft loss only in the year you discover your property was stolen. You must be able to show that there was a theft, but you do not have to know when the theft occurred. However, you should show when you discovered that your property was missing.

Disaster Area Loss

If you have a casualty loss from a disaster that occurred in a Presidentially declared disaster area, you can choose to deduct the loss on your tax return or amended return for either of the following years.

  • The year the disaster occurred.
  • The year immediately preceding the year the disaster occurred.
Table 27-1. How To Apply the Deduction Limits for Personal-Use Property
$100 Rule 10% Rule
General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Apply this rule after you have figured the amount of your loss. You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Apply this rule after you reduce each loss by $100 (the $100 rule).
Single Event Apply this rule only once, even if many pieces of property are affected. 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 - With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Apply separately to each person.
Married Couple - With Loss From the Same Event Filing Jointly Apply as if you were one person. Apply as if you were one person.
Filing Separately Apply separately to each spouse. Apply separately to each spouse.
More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Apply separately to each owner of jointly owned property.
Table 27-2. When To Deduct a Loss
IF you have a loss... THEN deduct it in the year...
From a casualty, The loss occurred.
In a Presidentially declared disaster area, The disaster occurred or the year immediately before the disaster.
From a theft, The theft was discovered.
On a deposit treated as a:
· Casualty, · A reasonable estimate can be made.
· Bad debt, · Deposits are totally worthless.
· Ordinary loss, · A reasonable estimate can be made.

Postponed tax deadlines.   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a Presidentially declared disaster. The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA.

If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB).

Who is eligible.   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement.

  • Any individual whose main home is located in a covered disaster area (defined next).
  • Any business entity or sole proprietor whose principal place of business is located in a covered disaster area.
  • Any relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area.
  • Any individual, business entity, or sole proprietor whose records are needed to meet a postponed deadline, provided those records are maintained in a covered disaster area. The main home or principal place of business does not have to be located in the covered disaster area.
  • Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area.
  • The spouse on a joint return with a taxpayer who is eligible for postponements.
  • Any other person determined by the IRS to be affected by a Presidentially declared disaster.

Covered disaster area.   This is an area of a Presidentially declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year.

Abatement of interest and penalties.   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines.

More information.   For more information, see Disaster Area Losses in Publication 547.

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