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A. Casualty Losses
Pursuant to section 165(a) and (c)(3), a taxpayer is allowed
a deduction for an uncompensated loss that arises from fire,
storm, shipwreck, or other casualty. Section 165(h), however,
states that any “loss * * * shall be allowed only to the extent
that the amount of the loss to such individual arising from each
casualty * * * exceeds $100” and only to the extent that the net
casualty loss “exceeds 10 percent of the adjusted gross income”.
When property is damaged rather than totally destroyed by
casualty, the proper measure of the amount of the loss sustained
is the difference between the fair market value of the property
immediately before and after the casualty, not to exceed the
property’s adjusted basis. See sec. 1.165-7(b)(1), Income Tax
Regs. The fair market values required by the Treasury
regulations must generally be ascertained by competent appraisal.
See sec. 1.165-7(a)(2)(i), Income Tax Regs. As an alternative,
the Treasury regulations provide that if the taxpayer has
repaired the property damage resulting from the casualty, the
taxpayer may use the cost of repairs to prove the casualty loss.
See sec. 1.165-7(a)(2)(ii), Income Tax Regs. In general,
estimates of the cost of repairs are not evidence of the actual
costs of repairs unless the repairs are actually made. See
Lamphere v. Commissioner, 70 T.C. 391, 396 (1978); Farber v.
Commissioner, 57 T.C. 714, 719 (1972).
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Last modified: May 25, 2011