18.4 Who May Deduct a Casualty Loss

A casualty loss deduction may be claimed only by the owner of the property. For example, a husband filing a separate return may not deduct damage to a car belonging to his wife; only she may deduct it on her separate return.

On jointly owned property, the loss is divided among the owners. If you and your spouse own the property jointly, you deduct the entire loss on a joint return. If you file separately, each owner deducts his or her share of the loss on each separate return.

If you have a legal life estate in the property, the loss is apportioned between yourself and those who will get the property after your death. The apportionment may be based on actuarial tables that consider your life expectancy.

You may claim a casualty loss for property lost or destroyed by your dependent if you own the property. You may not claim a loss deduction for destroyed property that belongs to your child who has reached majority, even though he or she is still your dependent.

Lessee.

A person leasing property may be allowed to deduct payments to a lessor that are required under the lease to compensate for a casualty loss. A tenant was allowed to deduct as a casualty loss payment of a judgment obtained by the landlord for fire damage to the rented premises that had to be returned in the same condition as at the start of the lease. However, the Tax Court does not allow a deduction for the cost of repairing a rented car, as the lessee has no basis in the car.

Caution

Damage to Nearby Property

The casualty must have caused damage to your property. Damage to a nearby area that lowered the value of your property does not give you a loss deduction.

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