Application of The Casualty Loss Deduction
According to §62(a)(3), only losses from Sale or Exchange are above the line. Other losses are usually “regular itemized deductions” (below the line) if included in §67(b)’s exceptions.
165(a):
1. Loss must be “sustained” (a. Depends on taxpayer’s reasonable expectation of recovery from the wrongdoer, b. should be resolved independently of any insurance consequences involved, and (2) taxpayer must not have been “compensated” for the loss
165(c):
If a realized loss is not described below, an individual taxpayer cannot deduct the loss.
1. losses incurred in a trade or business
2. losses incurred in profit-motivated transactions
3. casualty and theft losses w/ respect to personal-use property.
Read more about this topic: Casualty Loss
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