Losses

Generally, you may deduct losses to your home, household goods, and motor vehicles on your federal income tax return. However, you may not deduct a casualty or theft loss that is covered by insurance unless you filed a timely insurance claim for reimbursement. Any reimbursement you receive will reduce the loss. If you did not file an insurance claim, you may deduct only the part of the loss not covered by insurance.

Amount of loss. To determine the amount of your loss, you must know the adjusted basis of the property, and its fair market value (FMV) immediately before and immediately after the disaster or casualty. If you bought the property, your basis is usually its cost. If you acquired it in any other way, your basis is determined as discussed in Publication 551, Basis of Assets.

FMV is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts.

You figure the amount of your loss using the following steps.

  1. Determine your adjusted basis in the property before the casualty or theft.
  2. Determine the decrease in fair market value of the property as a result of the casualty or theft. (The decrease in FMV is the difference between the property's value immediately before and immediately after the casualty or theft.)
  3. From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.
Apply the deduction limits, discussed later, to determine the amount of your deductible loss.

Separate computations. Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Then combine the losses to determine the total loss from that casualty or theft.

Exception for personal-use real property. In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Figure the loss using the smaller of the following.

  • The decrease in FMV of the entire property.
  • The adjusted basis of the entire property.

Deduction limits. After you have figured the amount of your loss, as discussed earlier, 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, 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 losses by 10% of your adjusted gross income (10% rule).

For more information about the deduction limits, see Publication 547.

When your loss is deductible. You can generally deduct a casualty or disaster area loss only in the tax year in which the casualty or disaster occurred. You can generally deduct a theft loss only in the year you discovered your property was stolen. However, you can choose to deduct disaster area losses on your return for the year immediately before the year of the disaster if the President has declared your area a federal disaster area. For details, see Disaster Area Losses in Publication 547.