• Loss or Gain
  • Complete Destruction
  • Partial Destruction
  • Tax Gain and Loss Details
  • Adjusted Basis
• When To Deduct a Loss
• Proof of Loss
• Figuring a Gain
• Replacement Property
• Replacement Period
• Postponing Gain
• Presidentially Declared Disaster Areas
• Additional Resources
• Sources and Credits

Tax Implications - Adjusted Basis

If your property is only damaged (partially destroyed) then you must adjust the basis in your property for reimbursements received. Your basis must be decreased by any insurance or other reimbursement you receive and any deductible loss claimed on your tax return. The result is your adjusted basis in the property after a partial casualty loss. The costs of cleaning up or making repairs to damaged property is not a part of the casualty loss but can be deducted as a business expense if the property is farm property and not personal use property. While repairs cannot be included in casualty loss calculations, the amounts spent to restore property after a casualty increase the adjusted basis of the property. The costs of cleaning and repairing can be used as an estimate of the loss of FMV if all of the following conditions are meet:

1. The repairs are necessary to bring the property back to its condition before the casualty.
2. The amount spent for repairs is not excessive.
3. The repairs fix only the damage.
4. The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.

Other incidental expenses due to a casualty, such as an expense for treatment of personal injury, tempo- rary housing, rental car, etc. are not part of the casualty loss. These expenses may be deducted as a business expense if the partially destroyed property was farm property.