Sec. 1.165-7 Casualty losses

[equinecpa]

I have a client whose rental property was pretty much destroyed in the North Texas flood of 2007. They claimed a casualty loss and have since repaired the property. Their 2007 return is being audited and the auditor is giving us grief on the amount of casualty loss they can claim.

My client claimed a loss of $28,500. They have receipts for repairs totaling $23,079 and performed the majority of the repairs themselves-there is very little labor included in those receipts. If they had hired outside contractors the cost of repairs would have been much higher than the loss claimed.

The auditor is saying that since my client only has receipts for $23,079 she is only allowing that much of the loss. This is ludicrous. If my client hadn't actually repaired the property, the loss would have been allowed. Has anyone ever dealt with a similar situation?

[MLINDER42]

Casualty

Taxpayers own labor is never allowed as a deduction.Same for charity your own labor is not deductible.

[jimmcg]

I have a client whose rental property was pretty much destroyed in the North Texas flood of 2007. They claimed a casualty loss and have since repaired the property. Their 2007 return is being audited and the auditor is giving us grief on the amount of casualty loss they can claim.

My client claimed a loss of $28,500. They have receipts for repairs totaling $23,079 and performed the majority of the repairs themselves-there is very little labor included in those receipts. If they had hired outside contractors the cost of repairs would have been much higher than the loss claimed.

The auditor is saying that since my client only has receipts for $23,079 she is only allowing that much of the loss. This is ludicrous. If my client hadn't actually repaired the property, the loss would have been allowed. Has anyone ever dealt with a similar situation?

Taxpayer's own labor not allowed as a deduction even if a deduction would have been allowed had the labor been performed by a more costly subcontractor. You are making a grevious error if you are looking for logic in the Code.

[OtisMozzetti]

This is ludicrous. If my client hadn't actually repaired the property, the loss would have been allowed.

The reason that the value of the client's labor in restoring the property isn't included in the deductible loss is that the value of the client's labor never had to be included in the client's income.

[Lion]

Appraisals?

Does your client have appraisals before and after the casualty showing a drop in value of the $28,500 he deducted? Or, an appraisal now showing it's still not back to it's original value? Or, any other paper trail? Otherwise, the auditor has the documented repairs...

[OtisMozzetti]

cost is repairs is a measure of drop in value

Does your client have appraisals before and after the casualty showing a drop in value of the $28,500 he deducted? Or, an appraisal now showing it's still not back to it's original value? Or, any other paper trail? Otherwise, the auditor has the documented repairs...

The deduction is supposed to be based upon the drop in value. Where the cost of repairs comes in as a measure of the drop in value. So, if the drop in value could be documented, the cost of repairs doesn't have to be considered. In that way, the client might be able to sidestep the issue that his own labor provided much of the repair.

[David1980]

The question here would be where did the $28,500 number come from. Whatever the source for that number on the original return ought to be documentation enough for the audit - unless the original number was one of those written on the ceiling.

[equinecpa]

The question here would be where did the $28,500 number come from. Whatever the source for that number on the original return ought to be documentation enough for the audit - unless the original number was one of those written on the ceiling.

You are right on the eight ball with this answer. The client is a real estate agent. I don't believe there was an appraisal done as the damage wasn't insured. I believe she based it on the fact that the property was gutted to its studs -the basic remaining value was in the real estate itself. If the building was all but destroyed shouldn't photographs documenting that be sufficient evidence?