Casualty Loss

Mr. Hemingway has residential property on a bluff overlooking Lake Michigan. This is a
prestige location and the value of the property before several severe squalls during the
summer of 2011 was $800,000. Five mature trees on the property were destroyed. These
trees had shaded the master bedroom and the back porch and screened the bedroom and the
bathroom windows and garage from the street. In addition, part of the bluff was
undermined. Mr. Hemingway deducted losses of $10,000 due to the loss of the trees and
$20,000 due to the collapse of part of the bluff (his estimates of what it would cost to return
the property to its original condition). There had been some erosion prior to the summer of
2011; however, the collapse of the bluff could be traced to the storm. Mr. Hemingway had
paid $700,000 for the property when he purchased it. The IRS disallows the casualty loss
because erosion is natural wear and tear and disagrees with his estimates of his losses.