The Personal Casualty and Theft Loss Tax Deduction: Analysis and Proposals for Change

A report examined factual and legal issues pertaining to proposed deficiencies in the personal casualty and theft loss deduction provision of the federal income tax laws. The public policy considerations underlying original enactment of the provision in 1867 are not specifically stated. However, it may be inferred from the President's Tax Expenditures Budget of that year that the provision was intended to reduce income tax liabilities for taxpayers in special circumstances which have a significant bearing on financial capacity to pay an income tax. Under present tax rules, the special circumstances include both uninsured personal losses and personal losses following partial insurance reimbursement. In either case, the result is to make the government a coinsurer of losses to nonincome-producing property held for personal use.