Rev. Rul. 71-560

A taxpayer suffered damage to the exterior of his home when smog containing an unusual concentration of chemical fumes suddenly descended upon the locality in which he lived. The smog lasted one day and was unusually severe. The exterior of the taxpayer's home had recently been painted. The painted surface of the taxpayer's home was eaten through overnight by the smog which resulted in the paint blistering and peeling from the wood. The damage to the exterior paint of the taxpayer's home caused by the severe concentration of chemical fumes in the smog was the result of an identifiable event, sudden in nature, fixing a point at which the loss to the damaged property could be measured, and was also unexpected or unusual in the context in which the damage occurred. This sudden change is different from the progressive damage that is sometimes caused by smog over a longer period of time.

Held, in the instant case such damage is a casualty within the meaning of section 165(c)(3) of the Internal Revenue Code of 1954 and the taxpayer is entitled to a nonbusiness casualty loss deduction. The amount of the loss is the lesser of either (1) the difference between the fair market value of the property immediately before and immediately after the casualty, or (2) the adjusted basis of the property. That amount reduced by $100 is allowable as a casualty loss deduction.