How is the amount of casualty loss determined according to tax regulations?

The amount of casualty loss is best determined by either the cost of repairs or an appraisal, rather than solely by the adjusted basis of the property or the fair market value decrease.

Calculating a casualty loss generally involves considering the decreased value of the property due to the casualty event, which reflects how much the property has diminished in value. This loss can be substantiated through a qualified appraisal that assesses the property's value before and after the loss. Appraisals provide an objective assessment of the property's worth and the extent of the damage incurred.

Additionally, the cost of repairs that are necessary to restore the property can also serve as a basis for determining the amount of loss, as long as these repairs are reasonable and directly related to the casualty. The IRS emphasizes that taxpayers can use whichever method provides a more accurate measure of their loss.

Thus, while appraisals are a key component of determining casualty loss, they are part of a broader framework that allows for the inclusion of repair costs, making option D a more comprehensive choice in understanding how casualty loss is ascertained.