When To Deduct a Loss

Generally, you can deduct the part of your casualty or theft loss that isn’t reimbursable in the tax year the casualty occurred or the theft was discovered. However, a disaster loss and a loss from deposits in insolvent or bankrupt financial institutions may be treated differently. See Disaster Losses and Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions , later.

If in the year of the casualty there is a claim for reimbursement with a reasonable prospect of recovery, the loss is not sustained until you know with reasonable certainty whether such reimbursement will be received. If you aren’t sure whether part of your casualty or theft loss will be reimbursed, don’t deduct that part until the tax year when you become reasonably certain that it won’t be reimbursed. This later tax year is when your loss is sustained.

If you are reimbursed for a loss you deducted in an earlier year, include the reimbursement in your income in the year you received it, but only to the extent the deduction reduced your tax in an earlier year.

See Lessee’s loss in Pub. 547 for special rules on when to deduct losses from casualties and thefts to leased property.