IRS Deudctions
 

Amount of Loss

Once it is determined that you have suffered a casualty or theft, you next must determine the amount of your loss.

How to calculate the amount of loss?

The amount of your casualty or theft loss is the smaller of the following minus any insurance or other reimbursements you receive or expect to receive.

  • The adjusted basis of the property before the casualty or theft, or

  • The decrease in fair market value of the property as a result of the casualty or theft

Amount of Loss

What is the adjusted basis?

The adjusted basis is your basis in the property (usually the cost of the property) increased or decreased by various items such as improvements and previous casualty losses.

What is the decrease in fair market value or FMV?

The decrease in fair market value of FMV is the difference between the value of the property immediately before and immediately after the casualty or theft. The FMV of stolen property, including money, immediately after a theft is zero. If the stolen property is recovered, the decrease in value is the difference between the FMV when the property was stolen and when you got it back.

For example, if your wallet is stolen and it contained $500 then the decrease in the value of the property is $500.

If you ran your car into a pole. Before the accident, the car was worth $6,000 and after the accident the FMV of the car was $2,000. The decrease in the value of the car is $4,000 ($6,000 - $2,000). If you had paid $12,000 for the car, then the amount of your loss would be $4,000 which is the smaller of the adjusted basis of the decreased in FMV.