- 4 -
Section 165(a) allows as a deduction “any loss sustained during
the taxable year and not compensated for by insurance or
otherwise.” For individuals, the deduction is available only
for: (1) Losses incurred in a trade or business; (2) losses
incurred in transactions entered into for profit; or (3) losses
of property not connected with a trade or business or with a
transaction entered into for profit, if such losses arise from
“fire, storm, shipwreck, or other casualty, or from theft.” Sec.
165(c).
The amount of a casualty or theft loss is generally limited
to the lesser of the property’s reduction in fair market value or
the property’s adjusted tax basis. Secs. 1.165-7(b)(1) and
1.165-8(c), Income Tax Regs. Petitioners bear the burden of
proving both the occurrence of a casualty or theft within the
meaning of section 165 and the amount of the loss. See Rule
142(a); Elliott v. Commissioner, 40 T.C. 304, 311 (1963).
A casualty loss deduction under section 165(a) is allowed
only for the taxable year in which the loss was sustained. Sec.
1.165-7(a)(1), Income Tax Regs. If the taxpayer has a reasonable
prospect for recovering the loss (for example, through insurance
or a lawsuit), no portion of the loss is treated as being
sustained until it can be ascertained with reasonable certainty
that the taxpayer will not receive reimbursement. Sec. 1.165-
1(d)(2), Income Tax Regs. A taxpayer has a reasonable prospect
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: March 27, 2008