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Sudden financial hardship is always a difficult time for any individual. It can be particularly trying when the loss is the result of a tragic accident. When something sudden, unexpected, or out of the ordinary results in an economic loss, it can be claimed as a “casualty loss” on an income tax return.
Certain events are classified as “sudden,” “unexpected,” or “out of the ordinary” such as the loss of property in a fire, property damage incurred during a storm, or the loss of trees on a property without any warning. All of these can be deducted from federal income tax under IRS tax law without much difficulty. However, the definition of what can be considered a casualty loss is up for some interpretation.
For example, in the case of Carpenter vs. Commissioner, the plaintiff claimed that because he accidentally dropped a diamond ring into the garbage disposal and the garbage disposal then proceeded to destroy the ring, it should qualify as a casualty loss. The tax court stated that “damage to the ring resulted from the destructive force of the disposal coupled with the accident or mischance of placing it therein; that, because this is so, the damage must be said to have arisen from fortuitous events over which the petitioners had no control.” Therefore, the significant financial loss incurred by the damage to the diamond ring can be written off as a casualty loss.
