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(b) Amount of Deduction.--For purposes of
subsection (a), the basis for determining the amount of
the deduction for any loss shall be the adjusted basis
provided in section 1011 for determining the loss from
the sale or other disposition of property.
(c) Limitation of Losses of Individuals.--In the
case of an individual, the deduction under subsection
(a) shall be limited to--
(1) losses incurred in a trade or
business;
(2) losses incurred in any transaction
entered into for profit, though not connected
with a trade or business; and
(3) * * * 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.
Section 1.165-7, Income Tax Regs., provides in part:
�1.165-7. Casualty losses.--(a) In general--(1)
Allowance of deduction. * * * any loss arising from
fire, storm, shipwreck, or other casualty is allowable
as a deduction under section 165(a) for the taxable
year in which the loss is sustained. * * * The amount
of a casualty loss shall be determined in accordance
with paragraph (b) of this section. * * *
(2) Method of Valuation. (i) In
determining the amount of loss deductible
under this section, 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 this section shall be limited to the
actual loss resulting from damage to the
property.
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Last modified: May 25, 2011