Casualty Losses Flashcards
Individuals can deduct losses if fit into 3 categories:
1 business trade: 165 c-1
- Investment 165 c-2
- Personal casualty losses 165 c-3
the loss cant be
compensated by insurance or otherwise.
in casualty losses you need
closed and completed transactions
Analysis
- 1001 to calculate gain or loss
- Deductible via 165?
- Look to 62 for ATL
appraisal value
irrelevant- use AR unless sale to related party.
165 c-2 investment property
allows loss even ATL though most BTL
Theory for allowing investment prop losses
Lowers EI
If motive isnt profit
cant take the loss. 1.165-9
mixed motive (classic car)
virtually any personal use results in dissallowance of deduction.
conversion of personal to investment then sell at loss
possible decution. take bases lower of Cost/FMv at time of conversion
rationale for no deduction of personal prop losses
imputed income isnt taxed, so we dont allow deductions for expenses related to producing nontaxed income.
theory on not taking imputed income
consumption is the return.
if you took previous depreciaiton on property before loss
must ajust bases to account for depreciation- no double dipping!
for losses need a …
closed and complete which is a realizaiton events
theft is a
realization event
if insurance does pay : less/more
less- reduce loss by amount
more- report income.
IN a loss if reasonably prospect of recovery
loss is suspended until recovery is determined with reasonable certainty.
HYPO: BUY house for 200k, goes up to 250k, burns down, 50k (loss or gain
vanishes
Hypo- house burned, no insurance
165-4 deduction limited to extend loss exceeds 10% AGI (150K loss, 100k GI, S0 150-10=140 LOSS BTL
Reduce bases by amount you take deduct as loss.
criticism of alloing loss for no insurance house burned
partial insurance through tax code. since its no onger a production of imputed income.
hypo: sale on stock at a loss
ATL- 165 c -2 applies to property held for profit.
