## Facts

- The Commissioner of Internal Revenue challenged how taxpayers computed casualty-loss deductions under the Revenue Acts of 1932 and 1934 for nonbusiness personal-use property.
- In Owens, the taxpayers bought a pleasure automobile for $1,825; it was damaged in 1934 in an uninsured collision.
- In Owens, the automobile’s fair market value was $225 immediately before the collision and $190 immediately after; the taxpayers claimed a $1,635 deduction (cost minus post-casualty value), while the Commissioner allowed $35 (pre- vs. post-casualty value change).
- The Board of Tax Appeals and the court of appeals allowed the larger deduction for the Owenses.
- In Obici, the taxpayers bought a pleasure boat, boathouse, and pier in 1926 for $5,325; the uninsured property was totally destroyed by a storm in 1933.
- In Obici, the property’s value immediately before destruction was $3,905; the taxpayers claimed a deduction measured by cost, while the Commissioner limited the deduction to $3,905.
- The Board of Tax Appeals sided with the taxpayers in Obici, but the court of appeals reversed.
- The Supreme Court consolidated the cases to resolve conflicting lower-court approaches to measuring deductible casualty losses for nonbusiness property.

## Issues

1. Under the Revenue Acts of 1932 and 1934, is the deductible casualty loss for nonbusiness, nondepreciable property measured by original cost or by fair market value immediately before the casualty?
2. Under § 113(b)(1)(B) of the 1934 Act (and the parallel 1932 provision), is the basis-adjustment language merely definitional, or does it limit loss deductions so they do not exceed cost (and, where relevant, the then-depreciated value)?

## Decision

- The Court held that for nonbusiness property for which no depreciation deductions are allowed, the basis for determining a casualty-loss deduction is the property’s value immediately before the casualty, not its original cost.
- The Court construed § 113(b)(1)(B) (and its counterpart) as a limitation on loss deductions: the deduction may not exceed cost, and for depreciable nonbusiness property may not exceed the loss actually sustained as measured by the then-depreciated value.
- Owens: reversed the judgment allowing the larger deduction; the deductible loss was limited to the $35 decline in value caused by the collision.
- Obici: affirmed the judgment limiting the deduction to the $3,905 value immediately before destruction.

## Legal Principles

- A casualty-loss deduction for nonbusiness, nondepreciable property is limited to the decline in fair market value attributable to the casualty, measured by value immediately before and after the event.
- “Losses sustained during the taxable year” are confined to actual economic loss in that year and do not permit treating prior declines in value as a current casualty loss.
- Basis provisions and required adjustments for depreciation operate to cap loss deductions: they prevent deductions exceeding cost/adjusted basis and, for depreciable property, prevent deductions exceeding then-depreciated value.
- A taxpayer may not convert unrecovered historical cost of personal-use property into a larger casualty-loss deduction when the property had already lost value before the casualty.

## Conclusion

The Supreme Court limited casualty-loss deductions for personal-use property to the actual diminution in value caused by the casualty and read the statutory basis-adjustment rules as restricting loss deductions so they do not exceed cost or appropriate adjusted value, reversing in Owens and affirming in Obici.


Helvering v. Owens, 305 U.S. 468 (1939)