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1. The Casualty Loss Deduction
In general and in addition to other types of losses, an
individual is entitled to a deduction for the loss of property if
the loss arises from fire, storm, shipwreck, or other casualty
and is not compensated for by insurance or otherwise. Sec.
165(a), (c)(3). “Other casualty” is defined as a loss
proximately caused by a sudden, unexpected, or unusual event,
excluding the progressive deterioration of property through a
steadily operating cause or by normal depreciation. Maher v.
Commissioner, 680 F.2d 91, 92 (11th Cir. 1982), affg. 76 T.C. 593
(1981); Coleman v. Commissioner, 76 T.C. 580, 589 (1981). There
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).
Whether damage qualifies as a casualty typically turns on whether
the damage satisfies the suddenness requirement, which denotes an
accident, a mishap, or some sudden invasion by hostile agency
rather than progressive deterioration of property through
steadily operating cause. Fay v. Helvering, 120 F.2d 253 (2d
Cir. 1941), affg. 42 B.T.A. 206 (1940). In considering whether
wood rot damage qualified as a casualty, we have held that the
“suddenness” of the loss itself (the lapse of time between the
precipitating event and the loss proximately caused by that
event) is a determining factor. Hoppe v. Commissioner, 42 T.C.
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Last modified: May 25, 2011