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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
occurred.
For casualty losses, the calculation of the amount of the
loss is defined in section 1.165-7(b)(1), Income Tax Regs., as
follows:
(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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Last modified: May 25, 2011