This IRS section should cover it:
Tax Topics - Topic 515 Casualty, Disaster, and Theft Losses
And here is what Chuck is referring to on the passive gain/loss:
Tax Topics - Topic 425 Passive Activities– Losses and Credits
Finally, Ron, this may apply to you - losses from a hobby:
Is it a Business or a Hobby?
Any gains you claim as a result of your racing team (or car shows)
can be offset by your loss of RF deposit if it was to be used in your
racing team (or as a show car).
Ian