Casualty Loss

Loss arising from the partial or complete destruction of property resulting from circumstances of a sudden, unexpected or unusual nature, such as storms, floods, fires, and auto accidents. These circumstances must be identifiable as the proximate cause of such a loss for classificatory purposes. Individuals may deduct a casualty loss as an itemized deduction to the extent of any amount not compensated for by insurance or otherwise if: (1) the loss is incurred in a trade or business; (2) the loss is incurred in a transaction entered into for profit; and (3) the loss is caused by fire, storm, shipwreck, or other casualty or by theft. In a business, casualty losses are typically shown as an extraordinary item net of tax in the income statement. For example, if the casualty loss is $10,000 and the company is in the 34% tax bracket, the after-tax loss presented in the income statement is $6600 = $10,000 (1 - .34).