In a casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

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When there is a casualty or theft of property and insurance proceeds are received, the basis of the property involved is reduced by the amount of insurance proceeds received and any recognized loss. This is because the insurance proceeds are considered a recovery of part of the property's cost, and the recognized loss represents the amount that is not covered by insurance.

In a Casualty or Theft, the Basis of Property Involved