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Per IRS Publication 17 Your Federal Income Tax (For Individuals), page 173:

Reimbursement Received After Deducting Loss

Actual reimbursement less than expected. If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement.

Example. Your personal car had a FMV of $2,000 when it was destroyed in a collision with another car in 2012. The accident was due to the negligence of the other driver. At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. You did not have a deductible loss in 2012.

In January 2013, the court awards you a judgment of $2,000. However, in July it becomes apparent that you will be unable to collect any amount from the other driver. You can deduct the loss in 2013 subject to the limits discussed later in Publication 17.

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