Personal Casualty Gains for individuals for United States Federal Income Tax

Income tax in the United States

In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

 purposes are defined in section of the Internal Revenue Code

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 as the recognized gain of property arising from fire, storm, shipwreck, or other casualty. The property in question cannot be connected with a trade, business, or transaction entered into for profit. See .

Eligibility

Along with persons filing as individuals, a husband and wife making a joint return for the taxable year are treated as one individual. See

Tax Consequences

Net personal casualty gains are taxed as gains from sales or exchanges of capital assets. See .

Determination

Net personal casualty gains are the excess of a taxpayer's personal casualty gains over personal casualty losses

Casualty loss

A casualty loss is a type of tax loss that is a sudden, unexpected, or unusual event. Damage or loss resulting from progressive deterioration of property through a steadily operating cause would not be a casualty loss...

in a given taxable year.

Examples

1. A taxpayer’s insured home is destroyed by an accidental fire. Prior to its destruction, the home was valued at its adjusted basis of $100,000 and insured at $130,000. After receiving insurance proceeds, the taxpayer will have a personal casualty gain of $130,000 and a personal casualty loss of $100,000 for a net personal casualty gain of $30,000.
2. A taxpayer owns a vacant lot covered with rocks. The lot has a fair market value of $30,000, but were the rocks not there, it would be worth $35,000. Late at night, a thief removes the rocks. The fair market value increases to $35,000. The taxpayer has a personal casualty gain of $5,000.