Casualty and Theft Losses- what is the FMV (Fair Market Value)?

Casualty and Theft Losses - What is the FMV (Fair Market Value)?

When calculating casualty or theft losses for tax purposes, the Fair Market Value (FMV) plays a critical role in determining the amount of loss you can claim. FMV is defined as the price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell. This value is essential for accurately reporting losses on your tax return.

How FMV is Used in Casualty and Theft Loss Calculations

• Before and After Casualty: To compute a casualty or theft loss, you must determine the FMV of the property both before and after the event. The difference between these two values helps establish the decrease in value.
• Loss Calculation Formula: The casualty or theft loss is calculated as follows:
  1. Subtract the FMV after casualty from the FMV before casualty to get the decrease in value.
  2. Take the smaller of the property’s cost basis or the decrease in FMV.
  3. Subtract any insurance or other reimbursements received.
• Gain from Casualty: If the reimbursement received exceeds the cost basis, you may have a gain from casualty, which must be reported separately.

Examples of Items Subject to FMV Evaluation

The IRS provides examples of personal-use property that may be affected by casualty or theft, including:

• Furniture (e.g., bed, chair, desk, sofa)
• Electronics (e.g., computer, TV, radio)
• Appliances (e.g., refrigerator, microwave, dishwasher)
• Outdoor equipment (e.g., lawn mower, snow blower)
• Clothing and accessories (e.g., shoes, coat, hat)

Important Considerations

• Documentation Required: You must keep records of the FMV before and after the casualty or theft to support your claim.
• Insurance Reimbursement: Any insurance or other reimbursement reduces the deductible loss amount.
• Tax Form Reference: Casualty and theft losses are reported on Form 1040-NR, Schedule A, and may require additional forms such as Form 4684 if the loss exceeds certain thresholds.

Source:

Publication 584 - Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)

Publication 561 - Determining the Value of Donated Property

Form 1040-NR Instructions

Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.