- 9 -
Issue 1. Casualty Loss
Section 165 governs the tax treatment of losses and reads in
relevant part as follows:
SEC. 165. LOSSES.
(a) General Rule.--There shall be allowed as a
deduction any loss sustained during the taxable year
and not compensated for by insurance or otherwise.
* * * * * * *
(c) Limitation on Losses of Individuals.--In the
case of an individual, the deduction under subsection
(a) shall be limited to–-
* * * * * * *
(3) except as provided in subsection
(h), losses of property not connected with a
trade or business or a transaction entered
into for profit, if such losses arise from
fire, storm, shipwreck, or other casualty, or
from theft.
Subsection (h) of section 165 further limits the allowable
deduction to the amount by which the casualty loss exceeds (1)
$100 and (2) the sum of personal casualty gains plus 10 percent
of the adjusted gross income of the individual.
Regulations promulgated under section 165 additionally
provide that, to be allowable as a deduction, a loss must be both
“evidenced by closed and completed transactions” and “fixed by
identifiable events”. Sec. 1.165-1(b), Income Tax Regs.
As interpreted by case law, a casualty loss within the
meaning of section 165(c)(3) arises when two circumstances are
present. First, the nature of the occurrence precipitating the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011