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must be a causal connection between the alleged casualty and the
loss claimed by the taxpayer. Kemper v. Commissioner, 30 T.C.
546, 549-550 (1958), affd. 269 F.2d 184 (8th Cir. 1959).
A casualty loss not connected with a trade or business or a
transaction entered into for profit is deductible under section
165(h) only to the extent (1) the loss exceeds $100, and (2) the
net casualty loss exceeds 10 percent of the adjusted gross income
of the taxpayer. The amount of the casualty loss from a partial
destruction of property is the lesser of the taxpayer’s adjusted
basis of the property or the difference in the property’s fair
market value immediately before and after the casualty. Sec.
1.165-7(b)(1), Income Tax Regs. The amount of the loss is
reduced by any insurance recovery and salvage value. Sec.
165(a); sec. 1.165-1(c)(4), Income Tax Regs. To establish the
amount of the loss, the relevant fair market values of the
property “shall generally be ascertained by competent appraisal”
conducted in a manner to ensure that any casualty loss deduction
“be limited to the actual loss resulting from damage to the
property.” Sec. 1.165-7(a)(2)(i), Income Tax Regs. As an
alternative, the taxpayer may use the cost of repairs to prove
the casualty loss (the cost of repairs method). See sec. 1.165-
7(a)(2)(ii), Income Tax Regs.
Whether damage qualifies as a casualty typically turns on
whether the damage satisfies the suddenness requirement, which
denotes an accident, a mishap, some sudden invasion by hostile
agency rather than progressive deterioration of property through
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Last modified: May 25, 2011