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J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return by J.K. Lasser Institute

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18.2 When To Deduct a Casualty Loss

Generally, you deduct a casualty loss in the year the casualty occurs, regardless of when you repair or replace the damaged or destroyed property. However, a deduction is allowed in the year you pay to repair corrosive drywall damage to your home or household appliances under a special IRS procedure (18.1). For a qualifying disaster area loss (18.3), you have the option of claiming the loss on your return for the year immediately preceding the year in which the disaster occurred.

If a casualty occurs in one year and you do not discover the damage until a later year, or you know damage has been inflicted, but you do not know the full extent of the loss because you expect reimbursement in a later year, here is what to do:

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image Caution
Do You Expect to be Reimbursed?
If you think you might be reimbursed for part of your casualty loss in a later year but are not sure, the IRS says to delay taking the deduction for that part until the year you become reasonable certain that it will not be reimbursed.
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If you reasonably expect reimbursement in a later year.

For the year the casualty occurred, you should deduct only that part of your loss, after applying the personal property floors (18.12) for which you do not expect reimbursement. For example, if you expect a full insurance recovery in 2013 for a 2012 loss, ...

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