Federal Tax

Loss Deductions (Portfolio 527)

  • The Portfolio, Loss Deductions, explains what is necessary to establish a deductible loss.


Bloomberg Tax Portfolio, Loss Deductions, No. 527, explains what is necessary to establish a deductible loss; the Portfolio is relevant to all losses of whatever nature. Before a loss may be deducted, the taxpayer must establish that the loss is evidenced by a closed and completed transaction, fixed by identifiable events, and actually sustained during the taxable year. Further, the taxpayer must establish that he or she is the person who sustained the loss and is entitled to claim it, and that the loss was either incurred in a trade or business, or a transaction entered into for profit, or qualified as a casualty loss.

The Portfolio discusses the related party loss disallowance and deferral provisions, the “sham” transaction doctrine as applied to losses, and also public policy as a factor in denying a deduction. The Portfolio also discusses in detail a number of specific categories of loss, including abandonment losses, war and confiscation losses, casualty losses, financial institution deposit losses, theft losses and wagering losses.

Table of Contents

I. Summary of Legislative History
II. The Nature of an Allowable Loss
III. Losses from Business or Transactions Entered Into for Profit
IV. Who Is Entitled to Deduct the Loss?
V. Casualty and Theft Losses
VI. Losses for Certain Deposits in Financial Institutions
VII. Wagering Losses

John McCoy
John McCoy
Partner (deceased)
Arent Fox, LLP
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