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“fire, storm, shipwreck, or other casualty”, subject to
limitations set forth in section 165(h).
Section 165(h)(1) provides that any loss of an individual
described in section 165(c)(3) is allowed only to the extent that
the amount of the loss arising from each casualty exceeds $100.
Section 165(h)(2) provides that if the personal casualty losses
for a taxable year exceed the personal casualty gains for the
year, the losses are allowable only to the extent of the sum of
the personal casualty gains for that taxable year, plus so much
of the excess as exceeds 10 percent of adjusted gross income for
that taxable year. Thus, where there are no personal casualty
gains for a taxable year, personal casualty losses (in excess of
$100 per casualty) are allowable to the extent that they exceed
10 percent of adjusted gross income for that taxable year.
The method of valuation to be used in determining a casualty
loss is prescribed in section 1.165-7(a)(2), Income Tax Regs.,
which provides as follows:
(i) In determining the amount of loss deductible under * *
* [section 165], the fair market value of the property
immediately before and immediately after the casualty shall
generally be ascertained by competent appraisal. This
appraisal must recognize the effects of any general market
decline affecting undamaged as well as damaged property
which may occur simultaneously with the casualty, in order
that any deduction under * * * [section 165] shall be
limited to the actual loss resulting from damage to the
property.
(ii) The cost of repairs to the property damaged is
acceptable as evidence of the loss of value if the taxpayer
shows that (a) the repairs are necessary to restore the
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Last modified: May 25, 2011