IRC 165 (c)(2)

U.S. CODE

Title 26> Subtitle A> Chapter 1> Subchapter B> PART VI> Section 165

Section 165. Losses                                   

(a) General Rule

A deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise.

(b) Amount of Deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the losses from the sale or other disposition of property.

(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to –

• losses incurred in a trade or business:
• losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
• except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.