Deductibility of personal and business casualty losses by individuals

Individuals who sustained flood damage to their personal or business property during this past year, as well as those who sustained other casualty losses, may be eligible to deduct all or part of such losses on their federal income tax returns (Form 1040). In general, the allowable deduction is determined by the following: 1. assessing the gross decline in value of the damaged property resulting from the casualty, 2. reducing the loss amount by amounts recovered (e.g., insurance proceeds), and 3. applying any statutory limits to reduce the aggregate loss to the tax deduction permitted under the law. The gross amount of a nonbusiness casualty loss is the lesser of taxpayer's adjusted basis in the property or the decline in the property's fair market value due to the casualty. As a general rule, the loss must be calculated separately for each item damaged or destroyed. Similar rules apply to damaged or destroyed property used by individuals in business, but there are also some major differences.