Casualties and Thefts

As a result of a casualty or theft, you may have a loss related to your rental property. You may be able to deduct the loss on your income tax return.

Casualty. This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Such events include a storm, fire, or earthquake.

Theft. This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it.

Gain from casualty or theft. It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Generally, you must report this gain. However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. To do this, you must generally buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. In certain circumstances, the replacement period can be greater than 2 years; see Replacement Pe- riod in Pub. 547 for more information. The cost of the replacement property must be equal to or more than the net insurance or other payment you received.

More information. For information on business and nonbusiness casualty and theft losses, see Pub. 547.

How to report. If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Follow the Instructions for Form 4684 for where to carry your net gain or loss.