! you receive is more than your adjusted

CAUTION basis in the destroyed or stolen prop-

erty, you will have a gain on the casualty or theft. See Figuring a Gain in Pub. 547 for infor- mation on how to treat a gain from the reim- bursement you receive because of a casualty or theft.

Actual reimbursement same as expec- ted. If you later receive exactly the reimbursement you expected to receive, you don’t have to include any of the reimbursement in your income and you can’t deduct any additional loss.

Lump-sum reimbursement. If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the FMV of each asset at the time of the loss. Figure the gain or loss separately for each asset that has a separate basis.

Disaster assistance. Food, medical supplies, and other forms of assistance you receive don’t reduce your casualty loss unless they are replacements for lost or destroyed property. Excludable cash gifts you receive also do not reduce your casualty loss if there are no restrictions on how you can use the money.

Generally, disaster relief grants received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act aren’t included in your income. See Federal disaster relief grants , later, under Disaster Area Losses .

Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster aren’t taxable income to you. See Qualified disaster relief payments, later, under Disaster Area Losses .

Adjustments to basis. If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. The result is your adjusted basis in the property. If you make either of the basis adjustments described above, amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. See Adjusted Basis in chapter 6 for more informa- tion.

Example. You built a new grain storage facility for $50,000. This is the basis in your grain storage facility because that is the total cost you incurred to build it. During the year, a tornado damaged your grain storage facility and your

2018-02_IRB#RP-2018-08, provides safe harbor methods that you may use to figure the amount of your casualty and theft losses of your personal-use residential real property and personal belongings. If you qualify for and use a safe harbor method described in Revenue Procedure 2018-08, the IRS won’t challenge your determination. The use of a safe harbor method described in Revenue Procedure 2018-08 isn’t mandatory. For more information about this safe harbor method, see Pub. 547.

Related expenses. The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, aren’t part of your casualty or theft loss. However, they may be deductible as farm business expenses if the damaged or stolen property is farm property.

Separate computations for more than one item of property. Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Then, combine the losses to determine your total loss.

Example. A fire on your farm damaged a tractor and the barn in which it was stored. The tractor had an adjusted basis of $3,300. Its FMV was $28,000 just before the fire and $10,000 immediately afterward. The barn had an adjusted basis of $28,000. Its FMV was $55,000 just before the fire and $25,000 immediately afterward. You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Figure your deductible casualty loss separately for the two items of property.

Tractor Barn

1. Adjusted basis . . . . . . . . . $3,300 $28,000

2. FMV before fire . . . . . . . . . $28,000 $55,000

3. FMV after fire . . . . . . . . . . 10,000 25,000

4. Decrease in FMV (line 2 − line 3) . . . . . . . . . $18,000 $30,000

5. Loss (lesser of line 1 or line 4) . . . . . . . . . . . . . . . $3,300 $28,000

6. Minus: Insurance . . . . . . . 2,100 26,000

7. Deductible casualty loss . . . $1,200 $2,000

8) Total deductible casualty loss . . . . $3,200

You spent $10,800 restoring the tractor to its pre-casualty condition and $30,000 restoring the barn to its pre-casualty condition. Your adjusted basis in the tractor after the casualty is $10,800 ($3,300 − $2,100 − $1,200 + $10,800). Your adjusted basis in the barn after the casualty is $30,000 ($28,000 − $26,000 − $2,000 + $30,000).

Exception for personal-use real prop- erty. In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Figure the loss using the smaller of the following.

• The decrease in FMV of the entire property.

• The adjusted basis of the entire property.

Example. You bought a farm in 2011 for $300,000. The adjusted basis of the residential part is now $64,000. In 2025, a tornado, which was a federally declared disaster, blew down shade trees and three ornamental trees planted

at a cost of $3,750 on the residential part. The adjusted basis of the residential part includes the $3,750. The FMV of the residential part immediately before the tornado was $120,000 and $112,500 immediately after the tornado. The trees weren’t covered by insurance. Your adjusted gross income (AGI) for 2025 is $55,000.

1. Adjusted basis . . . . . . . . . . . . . $64,000
2. FMV before the tornado . . . . . . $120,000
3. FMV after the tornado . . . . . . . . 112,500
4. Decrease in FMV (line 2 − line 3) . . . . . . . . . . . . . $7,500
5. Loss before insurance (lesser of line 1 or line 4) . . . . . $7,500
6. Minus: Insurance . . . . . . . . . . . -07) Loss before applying limits . . . . . . . . . . . . . . . . $7,500

As explained later under Deduction Limits on Losses of Personal-Use Property , you have to reduce the $7,500 amount by the applicable limit or limits. As this loss is not a qualified disaster loss, the applicable limits would be $100 and 10% of your AGI. Because this loss is not attributed to a qualified disaster, your deductible loss would be figured as follows.

8. Subtract $100 . . . . . . . . . . . . . . 100
9. Loss after $100 rule . . . . . . . . . $7,400
10. Subtract 10% of $55,000 AGI . . . . . . . . . . . . . . . . . . . . . . . . 5,500 11) Casualty loss deduction . . . $1,900

You never replaced the trees. Your adjusted basis in the residential part of your property after the casualty is $62,100 ($64,000 − $1,900).

Insurance and other reimbursements. If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your business or personal loss. You don’t have a casualty or theft loss to the extent you are reimbursed.

If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. You must reduce your loss even if you don’t receive payment until a later tax year.

Don’t subtract from your loss any insur-