Casualty, Theft, and Other Itemized Deductions
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
A decline in value or ordinary deterioration is not necessarily a casualty loss.
A tax-practice scenario
A taxpayer's property is damaged during a federally declared disaster and insurance pays part. Measure the loss before applying limitations.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Starting with replacement cost rather than the tax measure of loss and adjusted basis.
Turn the rule into recall.
Separate event qualification, loss measurement, insurance recovery, and return-year choice.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.