Calculating the Casualty Deduction

For losses of trade or business property, or property used to produce rentals or royalties, once you've calculated the amount of your loss and subtracted the amount of your reimbursement, the remainder is your deductible loss (or gain).

Limits on personal losses. For thefts or casualties of personal or family property, your deductible loss is much more strictly limited. After calculating the amount of your loss and subtracting any reimbursements, you must subtract the smaller of the total amount of the loss or $100 for each casualty, theft, or accident you suffered during the year, regardless of the number of items that were damaged or destroyed during the event. If there is more than one event during the year, then the limitation applies to each event.

If you are married filing jointly, a single $100 reduction applies for each event, but if you are filing separately, each spouse who claims a loss must subtract $100, for a total of $200 per event for jointly owned property. If only one spouse owned the property at issue and you are filing separately, that spouse is the only one who can claim a deduction (and must apply the $100 reduction).

After the first $100 is subtracted, you're not in the clear yet. You must again reduce your deductible loss by a full 10 percent of your adjusted gross income as shown on Line 37 of your Form 1040. As a result, small personal casualty losses are unlikely to bring you any tax benefits.

If you have more than one casualty loss in a year, you must reduce the amount of each loss by $100 and apply the 10 percent of AGI reduction to that total amount.

Mixed-use property. If you suffered damage to your home, part of which you were using as a home office, or to your car, which you sometimes used for business, you have mixed-use property and your loss must be proportionately divided between the two types of usage. You will actually treat the event as if it were two separate losses. The $100 and 10 percent of AGI reduction applies only to the personal portion of the loss. Some special considerations apply in the case of home offices.