Question

Trevor recently purchased a beautiful house on a hillside in sunny California at a cost of $1 million. One evening while enjoying a barbeque on his patio and after a particularly heavy rain, Trevor is surprised to see his neighbor s house disappear in a mudslide. Visibly shaken, Trevor makes immediate efforts to sell his home. Although the view from his lot has improved considerably, he meets severe buyer resistance when forced to explain why he lacks one set of neighbors. Trevor best offer, made by a family just arrived in town, is $500,000. Trevor reevaluates his life insurance portfolio, places his personal affairs in order, and decides not to sell. Presuming the landslide caused no physical damage to his property, does Trevor have a casualty loss?

Answer 1

A casualty loss is a damage, destruction or loss to a property due to natural calamity like floods, hurricane, earthquakes etc. A casualty loss do not include normal wear and tear or regular deterioration.

Insurance proceeds are deducted for taking the deductibility. If the property is used personally or is not completely destroyed, then the lesser of adjusted basis or decrease in fair market value is deductible.

The landslide caused no physical damage to his property, so Trevor do not have a casualty loss, as casualty loss is applicable only in case of damage of property due to unexpected events. Neighbor's house disappearing in a mudslide do not cause casualty loss.

Hence, Trevor do not have casualty loss deduction.