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Section 165(a)1 allows as a deduction any loss sustained
during the taxable year and not compensated for by insurance or
otherwise. Section 165(c) limits the allowance of losses in the
cases of individuals. Section 165(c)(3) allows as a deduction to
an individual certain losses commonly referred to as casualty
losses. A casualty loss is allowable to an individual for a loss
of property not connected with a trade or business or with a
transaction entered into for profit if the loss results from
“fire, storm, shipwreck, or other casualty”, subject to
limitations set forth in section 165(h).
Section 165(h)(1) provides that any loss of an individual
described in section 165(c)(3) is allowed only to the extent that
1SEC. 165. LOSSES.
(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.
* * * * * * *
(c) Limitation on 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) except as provided in subsection (h), 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.
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Last modified: May 25, 2011