DEFINITION of 'Casualty And Theft Losses'
Deductible losses stemming from the loss or destruction of the taxpayer's personal property. In order to be deductible, casualty losses must result from a sudden and unforseeable event, such as fire or earthquake. Theft losses generally require proof that the property was actually stolen and not just lost or missing.
BREAKING DOWN 'Casualty And Theft Losses'
Casualty and theft losses are reported under the casualty loss section on Schedule A of Form 1040. They are subject to a 10% adjusted gross income (AGI) threshold limitation as well as a $100 reduction per loss. The taxpayer must be able to itemize deductions in order to claim any personal losses.
Jim lost his car and some jewelery as a result of theft. The car's fair market value was $7,500 and the jewelry was worth $1,800. His AGI for the year was $38,000. Assuming that Carl itemizes deductions, he can deduct any loss amount above $3,800 (10% of AGI). Therefore he can report a total loss as follows:
$7,500 + $1,800 = $9,300 loss
$9,300 - $100 - $100 = $9,100 ($100 reduction for each loss)
$9,100 - $3,800 = $5,300 deductible loss to be reported on Schedule A
Finally, losses that have been reimbursed by insurance are disallowed. Claims that are paid in a later year for losses that were deducted in a previous year must be counted as income.