Scott L. Lafavre and Shari L. Lafavre - Page 4

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               (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.                                                       
                  *       *       *       *       *       *       *                     
               (i) Disaster Losses.--                                                   
                    (1) Election to take deduction for preceding                        
               year.--Notwithstanding the provisions of subsection                      
               (a), any loss attributable to a disaster occurring in                    
               an area subsequently determined by the President of the                  
               United States to warrant assistance by the Federal                       
               Government under the Disaster Relief and Emergency                       
               Assistance Act may, at the election of the taxpayer, be                  
               taken into account for the taxable year immediately                      
               preceding the taxable year in which the disaster                         
               For casualty losses, the calculation of the amount of the                
          loss is defined in section 1.165-7(b)(1), Income Tax Regs., as                
                    (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 section 1.1011-1 for determining the loss from the                    
               sale or other disposition of the property involved. * *                  
               * [Emphasis added.]                                                      
               The calculation of a casualty deduction under section 165(a)             
          proceeds as follows.  First, the "loss" is determined as the                  
          lesser of (1) the difference between the fair market value of the             

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