Per the IRS, the fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV used to figure the amount of a casualty loss is the difference between the property's fair market value immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without a competent appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in fair market value.
Generally, the cost of cleaning up or making repairs if the repairs are:
- Actually made
- Not excessive
- Necessary to bring the property back to its condition before the casualty
- Only made to repair damage
- Not adding value to the property or making it worth more than before the disaster happened
For additional information, please see Reconstructing Records After a Natural Disaster or Casualty Loss.
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