Line 4

If you are entitled to an insurance payment or other reimbursement for any part of a casualty or theft loss but you choose not to file a claim for the loss, you cannot realize a gain from that payment or reimbursement.

Therefore, calculate the gain on line 4 by subtracting your cost or other basis in the property (line 2) only from the amount of reimbursement you actually received. Enter the result on line 4; do not enter less than zero.

If you filed a claim for reimbursement but did not receive it until after the year of the casualty or theft, include the gain in your income in the year you received the reimbursement.

Lines 5 and 6

Fair market value (FMV) is the price at which the property would be sold between a willing buyer and a willing seller, each having knowledge of the relevant facts. The difference between the FMV immediately before the casualty or theft and the FMV immediately after represents the decrease in FMV because of the casualty or theft.

The FMV of property after a theft is zero if the property is not recovered.

FMV is generally determined by a competent appraisal. The appraiser’s knowledge of sales of comparable property about the same time as the casualty or theft, knowledge of your property before and after the occurrence, and the methods of determining FMV are important elements in proving your loss.

The appraised value of property immediately after the casualty must be adjusted (increased) for the effects of any general market decline that may occur at the same time as the casualty or theft.

Example: The value of all nearby property may become depressed because it is in an area where such occurrences are commonplace. This general decline in market value is not part of the property’s decrease in FMV as a result of the casualty or theft.

Replacement cost or the cost of repairs is not necessarily FMV. However, you may be able to use the cost of repairs to the damaged property as evidence of loss in value if the:

repairs are actually made,

repairs are necessary to restore the property to the condition it was in immediately before the casualty,

amount spent for repairs isn’t excessive,

repairs only correct the damage caused by the casualty, and

the value of the property after the repairs is not, as a result of the repairs, more than the value of the property immediately before the casualty.

To calculate a casualty loss to real estate not used in a trade, business, or for income-producing purposes, measure the decrease in value of the property as a whole. All improvements, such as buildings, trees, and shrubs, are considered together as one item. Calculate the loss separately for other items, for example, each piece of furniture lost.

Safe harbor methods and reporting requirements: The IRS provides guidance on safe harbor methods for determining casualty and theft losses. If you use one of the safe harbor methods provided in an IRS Revenue Procedure, keep in your records a detailed statement specifying which IRS Revenue Procedure you used to determine the amount of your casualty loss. When completing this worksheet, do not enter an amount on line 5 or line 6 for each property. Instead, enter the decrease in the FMV determined in the relevant safe harbor method on line 7.

Line 11

If the amount on line 10 is from a 2017 qualified disaster loss from Hurricane or Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria, follow the instructions below.

If you have a loss from Hurricane or Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria on line 10, add the amounts on line 4 of all your casualty and theft worksheets.

If the amount on line 10 is larger than the sum of all line 4 amounts, substitute $500 for the line 11 amount on the worksheet for the federally declared disaster loss from Hurricane or Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria.

If the amount on line 10 is smaller than the total of all line 4 amounts, enter $100 and complete the remainder of the worksheet as if you have no 2017 disaster losses from Hurricane or Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria subject to the $500 reduction.