But partial losses, such as a tornado which ripped off your balcony, is allowed. What's the IRC section that talks about casualty losses. It certainly strikes me as reasonable.
IRC Sec. 165(c)(3) allows an individual a deduction for losses of property not connected with a trade or business or a transaction entered into for profit, arising from "fire, storm, shipwreck, or other casualty, or from theft." Although the statute doesn't provide much in the way of definition of a "casualty," case law defines it as the total or partial destruction of property arising from an identifiable event of a sudden, unexpected, or unusual nature. Examples are hurricanes, tornadoes, floods, accidents, etc. Gradual deterioration doesn't qualify. A loss from a stock market crash is not a casualty loss (Reg §1.165-4; Furer, Lewis & Martha Irene v. Com., (1994, CA9) 74 AFTR 2d 94-6019 , 33 F3d 58 , affg (1993) TC Memo 1993-165).
As Stu suggested, you might possibly get a casualty loss on foreign exchange if the foreign currency lost its value suddenly as a result of an invasion or insurrection. General fluctuations in currency values over time would not result in a casualty loss.
Katie in San Diego
According to OP, there were six months between conversions. That doesn't seem sudden, unexpected, or unusual, one of the hallmarks of a casualty loss.
-Mark Bole
Based on the facts provided, I agree with the responses that stated this is a personal and therefore non-deductible loss. However, if there were a gain involved, this type of currency transaction gain is ordinary income, not capital gain, regardless of holding period.
Also, just for a trip through the historical archives, I believe that IRC 165 that Katie quoted has it's origins in WW II. Prior to the U.S. becoming officially involved in the war effort in Europe, American manufacturers were suffering tremendous losses in shipping goods to Europe due to German U-Boats and none of the provisions in the Code as it existed at the time allowed the losses. That's why the provision for "shipwreck".
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