Personal Casualty Gains

Personal Casualty Gains for individuals for United States Federal Income Tax purposes are defined in section 165(h)(3)(A) of the Internal Revenue 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 26 U.S.C. § 165(c)(3).

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 26 U.S.C. § 165(h)(4)(B).

Tax Consequences

Net personal casualty gains are taxed as gains from sales or exchanges of capital assets. See 26 U.S.C. § 165(h)(2)(B). In layman terms, they are taxed as capital gains. Delay of a tax obligation resulting from a net personal casualty gain may be possible. Therefore, seeking professional help will likely be prudent.

Determination

Net personal casualty gains result when a taxpayer has personal casualty gains in excess of personal casualty losses for a taxable year. The net personal casualty gain is the amount of the excess.

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. The taxpayer will have a personal casualty gain of $30,000 after receiving insurance proceeds.

2. A taxpayer owns a vacant lot full of rocks having a fair market value of $30,000. Late at night, a thief removes the rocks. The fair market value increases to $35,000. The taxpayer has a net personal casualty gain of $5,000.