18.6 Damage to Trees and Shrubs

Not all damage to trees and shrubs qualifies as a casualty loss. The damage must be occasioned by a sudden event (18.1). Destruction of trees over a period of 5–10 days by southern pine beetles is deductible. One court allowed a deduction for similar destruction over a 30-day period. However, damage by Dutch Elm disease or lethal yellowing disease has been held to be gradual destruction not qualifying as a casualty loss. The Tax Court has allowed a deduction for the cost of removing infested trees, but denied a deduction for the loss of trees after a horse ate the bark.

If shrubbery and trees on personal-use property are damaged by a sudden casualty, you figure the loss on the value of the entire property before and after the casualty. You treat the buildings, land, and shrubs as one complete unit; see Example 2 below.

In fixing the loss on business or income-producing property, however, shrubs and trees are valued separately from the building; see Example 1 below.

EXAMPLES
1. Wayne Smith bought an office building for $90,000. The purchase price was allocated between the land ($18,000) and the building ($72,000). Smith planted trees and ornamental shrubs on the grounds surrounding the building at a cost of $1,200. When the basis of the building had been depreciated to $66,000, a hurricane caused extensive property damage in 2012. The fair market value of the land and building immediately before the hurricane was $18,000 and $80,000; immediately afterwards it was $18,000 and $52,000. The fair market value of the trees and shrubs immediately before the casualty was $2,000 and immediately afterwards, $400. Insurance of $15,000 is received to cover damage to the building. Deductible losses are figured separately for the building and the trees and shrubs. The deduction for the building is $13,000 and the deduction for the trees and shrubs is $1,200, computed as follows:
Value of building immediately before casualty $80,000
  Less: Value immediately after casualty   52,000
Loss in value $28,000
  Less: Insurance received   15,000
Deduction allowed for building $13,000
Adjusted basis for trees and shrubs   $1,200
Value of trees and shrubs immediately before casualty     2,000
  Less: Value of trees immediately after casualty        400
Loss in value   $1,600
Deduction allowed: Lesser of loss in value or adjusted basis   $1,200
2. Same facts as in Example 1, except that Smith purchases a personal residence instead of an office building. Smith’s 2012 adjusted gross income is $75,000, and this is his only loss. No allocation of the purchase price is necessary for the land and house because the property is not depreciable. Likewise, no individual evaluation of the fair market values of the land, house, trees, and shrubs is necessary. The amount of the deduction in 2012 for the land, house, trees, and shrubs is $7,000, computed as follows:
Value of property immediately before casualty $100,000
  Less: Value of property immediately after casualty     70,400
Loss in value   $29,600
  Less: Insurance received $15,000
    10% floor ($7,500) and $100 floor (18.12)   7,600    22,600
Deduction allowed    $7,000
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