Losses Due To Theft And Casualty

Isaiah owns a rental property in Oklahoma with an adjusted basis (purchase price less accumulated depreciation) of $120,000 and fair market value of $180,000. Last month, a tornado touched down in proximity to his rental property and caused significant damages to the roof, the back porch, and the whole left side of his rental. After the tornado, the fair market value of his property was appraised at $40,000. When Isaiah calculates his deduction, even though the fair market value of his property declined by $140,000 his deduction will be limited to $120,000, his adjusted basis of his property before the casualty.

On nights and weekends Emily works as an Uber driver to earn a little extra cash. Last week after a full day of driving she rear ended someone on her way home. Luckily her insurance provider covered all of the damage caused by the accident, which totaled $9,000. When emily prepares her tax return she will not be allowed to take any deduction for this accident on her Schedule C or her Schedule A since her loss was fully reimbursed by her insurance provider.

Mr. Wilfred owns a food truck in New Orleans, Louisiana. His business was growing steady until a large hurricane struck in August and completely destroyed his vehicle. Mr. Wilfred's adjusted basis (purchase price less accumulated depreciation) in his vehicle was $9,000 and he lost another $6,000 in business in the weeks following the hurricane. His insurance company reimbursed him $7,000 for his vehicle. When Mr. Wilfred prepares his Schedule C he will be able to deduct $2,000 as a casualty loss (adjusted basis less insurance reimbursement), however, the $6,000 of lost business would not be a deductible business expense. Luckily for Mr. Wilfred, since the hurricane was declared a federal disaster he can deduct his $2,000 casualty loss on his prior year return, and since Mr. Wilfred had requested an extension to file his prior year taxes in October, he won't have to wait long to take this deduction.

Agusta is an Airbnb host who rents the guesthouse in her backyard to visitors on a full-time basis. Last year, the guesthouse was broken into and furniture, electronics and appliances with a $12,000 adjusted basis were stolen. Unfortunately, Agusta's insurance company denied her claim since she was using her property as a "rental". When Agusta prepares her taxes at the end of the year, she should complete Form 4684 and report the $12,000 of loss on line 19 of her Schedule E.