Deductions — Losses — Arkansas Code § 26-51-424

# (a) Losses — Arkansas Code § 26-51-424(a)(1)

(a) Losses — Arkansas Code § 26-51-424(a)(1).

(1) Losses sustained during the tax year, not compensated for by insurance or otherwise, are fully deductible.

(2) Losses must usually be evidenced by closed and completed transactions.

(3) The basis for determining the amount of the deduction for loss is the same as is provided in Arkansas Code § 26-51-411 for determining the gain or loss from the sale or other disposition of property.

(4) Proper adjustments must be made in each case for:

(A) Expenditures, receipts, losses, or other items properly chargeable to the capital account; and

(B) Depreciation, obsolescence, amortization, or depletion.

(5) Moreover, the amount of the loss must be reduced by the amount of any insurance or other compensation received and by the salvage value, if any, of the property.

# (b) Removal or demolition of buildings — Arkansas Code § 26-51-424(a)(1)

(b) Removal or demolition of buildings — Arkansas Code § 26-51-424(a)(1).

(1) Losses due to the voluntary removal or demolition of old buildings and the scrapping of old machinery or equipment incidental to renewal or replacement are deductible from gross income.
(2)(A) When a taxpayer buys real estate upon which is located a building which he or she proceeds to raze with the intent of erecting thereon another building, the taxpayer has incurred no deductible loss or expense on account of the demolition of the old building.

(B) The basis in the real estate will be increased by the cost of the demolition.

# (c) Obsolescence of capital assets — Arkansas Code § 26-51-424(a)(1)

(c) Obsolescence of capital assets — Arkansas Code § 26-51-424(a)(1).

(1) When the usefulness of some or all of a taxpayer's capital assets ends causing the taxpayer to discontinue use of, or permanently discard, such assets from use in the business, the taxpayer may claim as a loss for the year in which it takes such action the difference between the cost of the assets (less depreciation, etc.) and the salvage value thereof.

(2) This deduction does not extend to a case where the useful life of property ends solely as a result of those gradual processes for which depreciation allowances may be taken (wear and tear), nor does it apply to inventories or to any assets other than capital assets.

(3) Moreover, this deduction applies to:

(A) Buildings only when they are permanently abandoned; and

(B) Machinery only when its intended use has been permanently discontinued.

(4) Any loss to be deducted under this provision must be fully explained in the taxpayer's income tax return.

# (d) Shrinkage in value of stock — Arkansas Code § 26-51-424(a)(1)

(d) Shrinkage in value of stock — Arkansas Code § 26-51-424(a)(1).

(1) Unless the lower of cost or market or mark to market methods are used for tax purposes, the owner of stock in a corporation cannot deduct from gross income a loss due to shrinkage in value of such stock through fluctuations in the market or otherwise until the stock is sold.

(2) The allowable loss is the amount realized when the stock is sold.

(3) If the stock of a corporation becomes worthless, the stock’s tax basis may be deducted in the tax year in which the stock became worthless.

# (e) Farm losses — Arkansas Code § 26-51-424(a)(1)

(e) Farm losses — Arkansas Code § 26-51-424(a)(1).
(1)(A) Losses incurred in the operation of farms as business enterprises are deductible from gross income.

(B) If farm products are held for a more favorable market, no deductions for shrinkage in weight or physical value by reason of deterioration in storage shall be allowed.

(C) Shrinkage may be allowed if an inventory is used to determine profits.

(2) The total loss by frost, storm, flood, or fire of a crop not yet harvested is not a deductible loss in computing net income.
(3)(A) A farmer engaged in raising and selling livestock, such as poultry, hogs, cattle, sheep, horses, etc., is not entitled to claim as a loss the value of such animals raised on the farm that perish, unless an inventory is used.

(B) The cost of any feed, pasture, or care that has been deducted as an expense of operation shall not be included as part of the cost of the livestock for the purpose of ascertaining the amount of deductible loss.

(4) If a taxpayer owns and operates a farm in addition to being engaged in another trade, business, or calling and sustains a farm-related loss, the amount of the farming loss sustained may be deducted from gross income received from all sources, provided the farm is operated for profit and not for recreation or pleasure.