A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, and unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.
If your property is not completely destroyed, or if it is personal-use property, determine your loss from a casualty by first figuring the decrease in fair market value of your property as a result of the casualty event. To determine the fair market value of your property, refer to these IRS guidelines. Keep in mind the general definition of fair market value is the price at which property would change hands between a buyer and seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts.
For more information regarding casualty losses of personal-use property and how to deduct them, refer to Publication 547, Casualties, Disasters, and Thefts.
If your business or income-producing property is completely destroyed, the decrease in fair market value is not considered. Your loss is the adjusted basis of the property, minus any salvage value and any insurance or other reimbursement you receive or expect to receive. For more information on determining adjusted basis, see Publication 551, Basis of Assets.