Losses sustained during the tax year, and not compensated for by insurance or otherwise are fully deductible if:

There shall be allowed 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 Disaster Relief Act of 1974. A taxpayer may elect to deduct this loss, less one hundred dollars ($100.00), for the year immediately preceding the tax year of the disaster. For example, if a taxpayer experiences a loss in 1993 and elects to carry the loss back to 1992, the loss is deductible only to the extent that it exceeds ten percent (10%) of the adjusted gross income for 1992.

No loss is realized by the transfer of property by gift, by death or by sale to any person related by blood or marriage at less than the fair market value.

Losses due to the voluntary removal or demolition of old buildings, scrapping of old machinery, equipment, etc., incident to renewals and replacements, are deductible from gross income. When a taxpayer buys real estate upon which is located a building which he proceeds to raze with the intent of erecting thereon another building, it will be considered that the taxpayer has sustained no deductible loss by reason of the demolition of the old building and no deductible expense on account of the cost of such removal, the value of the real estate, exclusive of old improvements, which is presumed equal to the purchase price of the land and building plus the cost of removing the useless building.

When, through some change in business conditions, the usefulness in the business of some or all of the capital assets is suddenly terminated so that the taxpayer discontinues the building or discards such assets permanently from use in such business, he may claim as a loss for the year in which he takes such action the difference between the cost of the assets less depreciation, etc., and the salvage value thereof. This exception does not extend to a case where the useful life of property terminates solely as a result of those gradual processes for which depreciation allowances are authorized, nor does it apply to inventories or to other than capital assets. The exception applies to buildings only when they are permanently abandoned and to machinery only when its use as such is permanently abandoned. Any loss to be deductible under this exception must be fully explained in the return of income.

A person possessing stock of a corporation cannot deduct from gross income any amount claimed as a loss merely on account of shrinkage in the value of such stock through fluctuation of the market or otherwise. The loss allowable in such cases is that actually suffered when the stock is disposed of. If such stock of a corporation becomes worthless, its cost or other basis may be deducted by the owner in the tax year in which the stock became worthless.

Losses incurred in the operation of farms as business enterprises are deductible from gross income. If farm products are held for favorable markets, no deductions for shrinkage in weight or physical value or by reason of deterioration in storage, shall be allowed except as such shrinkage may be reflected in an inventory, if used to determine profits. The total loss by frosts, storm, flood or fire of a prospective crop is not deductible loss in computing net income. A farmer engaged in raising or selling stock, cattle, sheep, horses, etc., is not entitled to claim as a loss the value of animals that perish from among these animals that were raised on the farm, except as such loss is reflected if an inventory is used. The cost of any feed, pasture, or care which has been deducted as an expense of operation shall not be included as part of the cost of the stock for the purpose of ascertaining the amount of deductible loss. If gross income is ascertained by inventories, no deduction can be made for livestock or products lost during the tax year, whether purchased for resale or produced on the farm, as such losses will be reflected in the inventory by reducing the amount of livestock or products on hand at the close of the tax year. If any individual owns and operates a farm, in addition to being engaged in another trade, business, or calling, and sustains a loss from such operation of the farm, then the amount of loss sustained may be deducted from gross income received from all sources, provided the farm is not operated for recreation or pleasure.