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The regulations provide the method for determining the
amount deductible. Section 1.165-7(b)(1), Income Tax Regs.,
provides:
(b) Amount deductible--(1) General rule. In the
case of any casualty loss whether or not incurred in a
trade or business or in any transaction entered into
for profit, the amount of loss to be taken into account
for purposes of section 165(a) shall be the lesser of
either--
(i) The amount which is equal to the fair
market value of the property immediately before the
casualty reduced by the fair market value of the
property immediately after the casualty; or
(ii) The amount of the adjusted basis
prescribed in sec. 1.1011-1 for determining the loss
from the sale or other disposition of the property
involved. However, if the property used in a trade or
business or held for the production of income is
totally destroyed by casualty, and if the fair market
value of such property immediately before the casualty
is less than the adjusted basis of such property, the
amount of the adjusted basis of such property shall be
treated as the amount of the loss for purposes of
section 165(a).
Fair market values are "generally" to be ascertained by
"competent appraisal". Sec. 1.165-7(a)(2)(i), Income Tax Regs.
Section 1.165-1(a), Income Tax Regs. (citing section 165(a))
provides that in computing taxable income under section 63, any
loss actually sustained during the taxable year and not made good
by insurance or some other form of compensation is allowable as a
deduction, subject to certain limitations not relevant here.
Section 1.165-1(d)(2)(i), Income Tax Regs., provides in general
that a casualty loss is not "sustained" before the year in which
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Last modified: May 25, 2011