8610. Do the passive loss rules apply to casualty losses?cjumprcline202014-07-07T22:11:00Z2014-07-07T22:11:00Z1163930National Underwriter721091148610. Do the passive loss rules apply to casualty losses?An exception to the passive loss restrictions is applied to certain casualty losses (see Q 8617 to Q 8628) resulting from unusual events (including fire, storm, shipwreck, and earthquake). Losses from such casualties are generally not subject to the passive loss rules..Treas. Regs. §§1.469-2T(d)(2), 1.469-2(d)(2)(xi). Likewise, passive activity income does not include reimbursements for such losses if both of the following are true:(1)the reimbursement is includable in gross income under Treasury Regulation Section 1.165-1(d)(2)(iii) as an amount the taxpayer had deducted in a prior taxable year; and (2)the deduction for the loss was not a passive activity deduction. In other words, both the losses and the reimbursement should be taken into account in the calculation of the partnership’s gross income, not its passive activity gross income..Treas. Regs. §§1.469-2T(c)(7), 1.469-2(c)(7)(vi). The exception does not apply to losses that occur regularly in the conduct of the activity, such as theft losses from shoplifting in a retail store, or accident losses sustained in the operation of a rental car business..TD 8290, 1990-1 CB 109.