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§ 165. Losses
(a)
General rule
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(b)
Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section
1011 for determining the loss from the sale or other disposition of property.
(c)
Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to—
(d)
Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
(e)
Theft losses
For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.
(g)
Worthless securities
(1)
General rule
If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.
(3)
Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if—
(A)
the taxpayer owns directly stock in such corporation meeting the requirements of section
1504
(a)(2), and
(B)
more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.
(h)
Treatment of casualty gains and losses
(1)
$100 limitation per casualty
Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $100.
(2)
Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income
(A)
In general
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of—
(3)
Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
(4)
Special rules
(A)
Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains
In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income to the extent such losses do not exceed the personal casualty gains for the taxable year.
(B)
Joint returns
For purposes of this subsection, a husband and wife making a joint return for the taxable year shall be treated as 1 individual.
(C)
Determination of adjusted gross income in case of estates and trusts
For purposes of paragraph (2), the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income.
(i)
Disaster losses
(1)
Election to take deduction for preceding year
Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.
(2)
Year of loss
If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed.
(3)
Amount of loss
The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the loss.
(4)
Use of disaster loan appraisals to establish amount of loss
Nothing in this title shall be construed to prohibit the Secretary from prescribing regulations or other guidance under which an appraisal for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government as a result of a Presidentially declared disaster (as defined by section
1033
(h)(3)) may be used to establish the amount of any loss described in paragraph (1) or (2).
(j)
Denial of deduction for losses on certain obligations not in registered form
(1)
In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for any loss sustained on any registration-required obligation unless such obligation is in registered form (or the issuance of such obligation was subject to tax under section
4701).
(3)
Exceptions
The Secretary may, by regulations, provide that this subsection and section
1287 shall not apply with respect to obligations held by any person if—
(A)
such person holds such obligations in connection with a trade or business outside the United States,
(B)
such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C)
such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D)
such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).
(k)
Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if—
(1)
not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).
(l)
Treatment of certain losses in insolvent financial institutions
(1)
In general
If—
(A)
as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individual’s deposit in a qualified financial institution, and
then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.
(2)
Qualified individual defined
For purposes of this subsection, the term “qualified individual” means any individual, except an individual—
(A)
who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(3)
Qualified financial institution
For purposes of this subsection, the term “qualified financial institution” means—
(4)
Deposit
For purposes of this subsection, the term “deposit” means any deposit, withdrawable account, or withdrawable or repurchasable share.
(5)
Election to treat as ordinary loss
(A)
In general
In lieu of any election under paragraph (1), the taxpayer may elect to treat the amount referred to in paragraph (1) for the taxable year as an ordinary loss described in subsection (c)(2) incurred during the taxable year.
(B)
Limitations
(i)
Deposit may not be federally insured
No election may be made under subparagraph (A) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
(ii)
Dollar limitation
With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under subparagraph (A) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
(6)
Election
Any election by the taxpayer under this subsection for any taxable year—
(7)
Coordination with section
166
Section
166 shall not apply to any loss to which an election under this subsection applies.
(m)
Cross references
(2)
For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section
271.
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