165 Loss
Definition:
The 165 loss, also known as a loss deduction under Internal Revenue Code Section 165, allows taxpayers to deduct certain losses sustained during the tax year that are not compensated by insurance or other means. These losses may include casualty, theft, or business-related losses, depending on the taxpayer’s situation and the nature of the property involved.
165 Loss Information
Section 165 provides tax relief for individuals and businesses that experience financial losses due to events such as fire, storm damage, theft, or other unexpected occurrences.
For **individual taxpayers**, deductible losses are generally limited to those related to business, income-producing property, or federally declared disaster areas. Personal casualty or theft losses are deductible only if attributable to such federally declared disasters.
For **businesses**, Section 165 allows deduction of losses resulting from the sale or exchange of property, abandonment, obsolescence, or casualty events affecting business assets. The deduction is typically equal to the property’s adjusted basis minus any salvage value or insurance reimbursement received.
Florida Legal Definition
In Florida, the 165 loss deduction follows federal tax law since Florida does not have a state income tax. Florida taxpayers apply the same IRS rules when claiming casualty, theft, or business losses on their federal returns.
Given Florida’s exposure to hurricanes and natural disasters, Section 165 is frequently used by residents and businesses affected by such events. Taxpayers must document the cause, timing, and amount of loss, and verify that the loss occurred in a federally declared disaster area to qualify for a deduction.
How It’s Used in Practice
In practice, individuals and businesses use Section 165 to recover part of the financial impact of unexpected losses through tax deductions. Taxpayers file **Form 4684 (Casualties and Thefts)** to compute and report eligible losses. For disaster-related losses, individuals may choose to claim the deduction in the year the loss occurred or the prior year to accelerate tax relief.
Tax professionals often assist clients in substantiating losses with insurance records, appraisals, and photographs. Businesses use the deduction to adjust their taxable income after property damage, theft, or other qualifying losses.
Key Takeaways
- Section 165 allows deductions for losses not compensated by insurance or other recovery.
- Personal losses are deductible only if caused by federally declared disasters.
- Business losses include casualty, theft, and abandonment of property used in trade or investment.
- Florida taxpayers use Section 165 primarily for hurricane or storm-related disaster losses.
- Claims require proper documentation and must be reported on IRS Form 4684.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron & Shea, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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