Casualty and Theft Loss - What Is My Cost or Basis of the Property?
When calculating a casualty or theft loss for personal-use property, determining your cost or other basis is a critical step. The basis is the original value of the property for tax purposes and is used to compute your deductible loss.
What Is Considered "Cost or Other Basis"?
Your cost or other basis includes:
- The original purchase price of the property.
- Any improvements or additions made to the property.
- Other costs directly related to acquiring or improving the property.
According to IRS guidelines, you must use the adjusted basis of the property before the casualty or theft occurred. This is the original basis adjusted for any depreciation, improvements, or other changes in value.
How to Determine Basis for Casualty Losses
Follow these steps to determine your basis for casualty or theft loss calculations:
- Determine your adjusted basis in the property before the casualty or theft.
- Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft.
- Take the smaller of the amounts from steps 1 and 2.
- Subtract any insurance or other reimbursement you receive or expect to receive.
This calculation is detailed in Publication 225 and Form 4684, which are designed to help taxpayers figure losses on personal-use property.
Examples of Property with Basis Considerations
The IRS provides examples of personal-use property for which you may need to calculate basis, including:
- Furniture (e.g., bed, chair, desk, sofa)
- Appliances (e.g., microwave, coffee maker, blender)
- Electronics (e.g., computer, TV, radio)
- Home accessories (e.g., curtains, rugs, mirrors)
These items are often included in casualty loss calculations when damaged or stolen.
Reporting on Form 4684
You must report casualty and theft losses on Form 4684. Use Section A for property not used in a trade or business or for income-producing purposes. The form includes columns for:
- Item description
- Cost or other basis
- Insurance or other reimbursement
- Gain from casualty or theft
- Fair market value before and after casualty
- Casualty/theft loss (calculated as smaller of basis or FMV decrease minus reimbursement)
For guidance on completing Form 4684, refer to its instructions and related publications.
Important Notes
- You must keep records that identify the basis of all capital assets (Publication 550).
- The loss is deductible only if it exceeds $100 per event and the total losses exceed 10% of your adjusted gross income (AGI) (Form 1040-NR instructions).
- Use Publication 584 as a workbook to help figure losses, but you must complete Form 4684 for official reporting.
Source:
Publication 225 - Business and Commercial Property
Form 4684 - Casualties and Thefts
Publication 584 - Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)
Publication 551 - Basis of Assets
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.