Casualty losses

Casualty losses may be indirect casualty losses or direct casualty losses expense. Whether the casualty losses are indirect casualty losses or direct casualty losses depend on the property affected by the casualty (the object of casualty losses).

What are casualty losses?

Casualty losses are losses from fire, storm, accident, and theft. For all casualty losses except theft loss, there must be actual physical damage to the property. Loss of value alone does not qualify for casualty loss. Casualty losses must also be from an event of a sudden, unexpected, or unusual nature such as a fire or storm. Deterioration over a period of time does not count as casualty loss. Theft casualty losses include larceny, robbery, and embezzlement.

Casualty loss example

A casualty loss example is, your home office is damaged in a storm and you are not fully compensated by your insurance. In this casualty loss example, you claim your casualty loss as a direct casualty losses expense.

In this casualty  loss example, if, however, the property damage is to your entire home (such as a roof leak), you treat the casualty loss as an indirect casualty losses expense. When claiming unreimbursed casualty losses, remember that the limits on tax deducting casualty losses to non business property do not apply to business unreimbursed casualty losses. You don't want to endure an IRS audit of casualty and theft loss unnecessarily.