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kmhagen July 05, 2005 When you suffer a loss caused by theft, vandalism, fire, storm, or similar causes, or a car, boat, or other type of accident, you may be able to take an itemized deduction on your US federal income tax return. You may also be able to deduct money you had in a financial institution but lost because of the insolvency or bankruptcy of the institution. The deduction of these types of losses is covered under the tax provisions for casualties, disasters, and thefts. Casualties A casualty, for federal income tax purposes, is defined as "the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual". A sudden event is one that is swift, and does not include damage that is gradual or progressive over time. An unexpected event is one that is not ordinarily anticipated. But this does not rule out storms, such as tornados or hurricanes, for instance, that periodically occur. If there is intent behind an accident, or a fire, for instance, the event is not unexpected and therefore does not qualify as a casualty for tax purposes. Willful negligence that results in an accident can also disqualify an event from being a deductible casualty loss. Unusual refers to events that are not day-to-day occurrences and are not typical. Accidentally dropping and breaking glassware or china, for example, may be unexpected and unintended, but for tax purposes it is not a deductible loss since it occurs in what would otherwise be considered normal circumstances. Examples of non-deductible losses due to progressive deterioration include normal wear and tear, steady weakening of a building due to the normal effects of wind and weather, termite damage, and the destruction of trees or other plants by a fungus, disease, insects, or other pests. Based on this definition, there are several different types of events that can result in a deductible casualty loss, including car accidents, earthquakes, fires, floods, storms, including hurricanes and tornadoes, vandalism, and government-ordered demolition or relocation of a home that is unsafe to use because of a disaster. Thefts Deductible theft losses include blackmail, burglary, embezzlement, extortion, larceny and robbery. There must be criminal intent in order for the loss to be deductible. Misplacing or otherwise losing personal property will not qualify for a deduction. Also, theft losses do not include a loss in the market value of your investment in stocks as a result of disclosure of fraud or other illegal misconduct by the officers or directors of the corporation. But you may be able to deduct a capital loss when you sell or exchange the stock, or if the stock becomes worthless. This capital loss would be taken on Schedule D, Capital Gains and Losses. Loss on Deposits If a bank, credit union, or other financial institution in which you have deposits goes bankrupt or becomes insolvent, you can deduct the loss when you can reasonably estimate how much of your deposits you have lost.
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