SECTION 5. PERSONAL

BELONGINGS SAFE HARBOR METHODS

.01 De Minimis Safe Harbor Method . Under the De Minimis Safe Harbor Method, an individual may make a good faith estimate of the decrease in the fair market value of the individual’s personal belongings. An individual using the De Minimis Safe Harbor Method must maintain records describing the personal belongings affected and detailing the methodology used for estimating the loss. The De Minimis Safe Harbor Method is avail

able for casualty or theft losses of $5,000 or less, prior to application of the limitations under § 165(h).

.02 Safe harbor method for Federally declared disasters .

(1) Replacement Cost Safe Harbor Method . Except as provided in section 5.02(2) of this revenue procedure, an individual may use the safe harbor method in this section 5.02(1) to determine the fair market value of the individual’s personal belongings located in a disaster area immediately before a Federally declared disaster in order to compute the amount of a casualty or theft loss. If an individual chooses to use the Replacement Cost Safe Harbor Method for a Federally declared disaster, the individual must apply that method to all personal belongings for which a loss is claimed under § 165 for that Federally declared disaster, except those specifically excluded in section 5.02(2) of this revenue procedure. To use this safe harbor method, an individual must first determine the current cost to replace the personal belonging with a new one and reduce that amount by 10% for each year the individual owned the personal belonging using the percentages in the Personal Belongings Valuation Table below. If the personal belonging was owned by the individual for nine or more years, the pre-disaster fair market value is 10% of the current replacement cost under this safe harbor method.

Personal Belongings Valuation Table

Year Percentage of Replacement Cost to Use

1 90%

2 80%

3 70%

4 60%

5 50%

6 40%

7 30%

8 20% 9� 10%

To determine the amount of a casualty or theft loss for personal belongings that were damaged, destroyed, or stolen: (a) Determine the decrease in the fair market value of each personal belonging by subtracting the fair market value of the per

sonal belonging immediately after the Federally declared disaster from the fair market value of the personal belonging immediately before the Federally declared disaster, determined as described above. If a personal belonging was destroyed or stolen as a result

of a Federally declared disaster, its fair market value after the disaster is zero. (b) Determine the basis of each personal belonging (generally its cost). (c) Compare the decrease in fair market value (from step (a)) with the basis of the

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personal belonging (from step (b)). From the lesser of the basis or decrease in fair market value, subtract any insurance or other reimbursements the individual receives or expects to receive for the personal belonging.

(2) Exclusions . An individual may not use the Replacement Cost Safe Harbor Method for Federally declared disasters for a boat, aircraft, mobile home, trailer, vehicle, or an antique or other asset that maintains or increases its value over time. For purposes of this revenue procedure, a vehicle is an automobile, motorcycle, motor home, recreational vehicle, sport utility vehicle, off-road vehicle, van, or truck.

An individual may determine the predisaster value of a boat, aircraft, mobile home, trailer, or vehicle by consulting established pricing sources. See Rev. Rul. 2002–67, 2002–2 C.B. 873; Publication 561, Determining the Value of Donated Property .

(3) Example . An individual’s personal belongings included a couch destroyed by a hurricane in a Federally declared disaster area. The individual purchased the couch for $700 four years prior to the hurricane. The cost to replace the couch with a new couch is $1,000. The couch is not insured.

Using the Replacement Cost Safe Harbor Method for Federally declared disaster areas, the individual computes the fair market value of the couch immediately before the hurricane by multiplying the current replacement cost of the couch,

$1,000, by the applicable percentage of replacement cost from the Personal Belongings Valuation table, 60%:

$1,000 - 60% - $600

The individual determines the decrease in the fair market value of the couch by subtracting $0, the fair market value of the couch immediately after the hurricane, from $600, the fair market value of the couch immediately before the hurricane.

$600 - 0 - $600

The individual compares the basis of $700 with the decrease in fair market value of $600. Since the decrease in fair market value is less than the basis, the amount of the individual’s casualty loss is $600.