Personal Casualty Losses

Taxpayers may generally deduct losses that are sustained during the tax year and not compensated for by insurance or otherwise (Sec. 165). For individuals, deductible losses must fall within one of three categories: losses incurred in a trade or business; losses incurred in transactions entered into for profit but not connected with a trade or business; and losses incurred as the result of fire, storm, shipwreck or other casualty, or from theft (personal casualty losses).

Special relief is provided for those who sustain losses attributable to a disaster occurring in an area that is later determined by the president of the United States to warrant assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Under this provision, a taxpayer may elect to deduct a loss on their return for the immediately preceding tax year (Sec. 165(i)). This in effect allows taxpayers to get a fast refund for their loss. The dollar and AGI floor limitations are also waived

John R. Dundon, EA - www.1040.com/jd - Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS - Under contract with the United States Department of Treasury as a Certified ITIN Acceptance Agent -720-234-1177