First. if ou need to read this article, let me express my condolences on your loss. As another consolation, thefederal government is willing to share in your losses by allowing you to lake a deduction for your casualty loss. Let me start with an analogy. Suppose you owned stock that you purchased for $6,000 and it had grown to $10,000 before the last big marketcrash. After the stock market plunge, your stock is worth $5,000. If you sold that stock, the IRS would allow you to claim a loss of S1,000, the difference between what you paid for the stock and its value on the date of sale. The fact that the stock wasworth $10,000 at one time has no bearing on the amount of gain or loss on the sale. The fact that your timber was worth $10,000 before the tornado has no bearing on the amount of loss you may claim now that your timber has been damaged. The amount deductible is the lesser of the diminution in fair market value of the single identifiable property (SIP) or its adjusted basis.
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