Casualty And Theft Losses
Casualty and theft losses are reported under the casualty loss section on Schedule A of Form 1040. They are subject to a 10% adjusted gross income (AGI) threshold limitation as well as a $100 reduction per loss. The taxpayer must be able to itemize deductions in order to claim any personal losses.
Jim lost his car and some jewelery as a result of theft. The car's fair market value was $7,500 and the jewelry was worth $1,800. His AGI for the year was $38,000. Assuming that Carl itemizes deductions, he can deduct any loss amount above $3,800 (10% of AGI). Therefore he can report a total loss as follows:
$7,500 + $1,800 = $9,300 loss
$9,300 - $100 - $100 = $9,100 ($100 reduction for each loss)
$9,100 - $3,800 = $5,300 deductible loss to be reported on Schedule A
Finally, losses that have been reimbursed by insurance are disallowed. Claims that are paid in a later year for losses that were deducted in a previous year must be counted as income.
Investment dictionary. Academic. 2012.
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