A disaster is a sudden, unexpected, and unusual event that can destroy property, people, and businesses. It can include natural disasters such as earthquake, hurricane, or flood, but it can also include much more banal events such as fire, accidents, theft, or vandalism. You may be able to deduct these losses from your taxes. As with any deduction, you will need to keep careful records of your property, its value, and its tax implications. Note, that casualty loss does not include losses from normal wear and tear. In addition, it does not include progressive deterioration from age or pests. Talk to your tax attorney if you have questions about what might constitute a casualty loss.
If you insured your property, you must file a claim quickly in order for the insurance company to reimburse you for your loss. If you do not, you cannot deduct the loss as a casualty or theft. You also must subtract the reimbursement from insurance from your tax deduction that you received or expect to receive. Generally, you must deduct the loss in the year it happened. However, if you are inside a federally declared disaster area you can deduct the loss in the year of the disaster, or in the subsequent year. If you are unsure how recent events might affect your talk to a tax attorney.
To determine the amount of deduction, the IRS recommends you first determine for how much you purchased property. If you obtained the property in some other way than a financial transaction such as an inheritance or gift, you will have to determine the base cost of the property some other way. Your tax attorney can also offer some advice for determining the base value of your property. Secondly, you must determine the fair market value of the property. In other words, you must determine what a reasonable buyer would pay for your property. For example if you purchased a new car in 2010, your claim must be made on what the car is worth now, not on the original sale price. Finally, if you have insurance on your property, such as the car example, you have to subtract your insurance reimbursement. Whatever is left is the amount you can deduct from your taxes after a further adjustment.
Once you have determined the fair market value, you must subtract $100 from each incident. Once you have subtracted $100, you then subtract 10% of your adjusted gross income. The loss minus any reimbursement, minus $100, minus 10% of your AGI is your total deduction. Let us say that in May you crashed your car, which cost you $1,800 after the insurance payout. In December, your basement flooded costing $3,200 after insurance. That is two separate events so your loss from the car is now $1,700 and your loss from the basement is $3,100 once you subtract the $100 from each event. Your total loss is now a combined $4,800 for both disasters. If your adjusted gross income is $25,000 then subtract 10%, or $2,500 from the $4800. Your new total is $2,300. This amount is what you can deduct from your taxes. If you are uncertain what your adjusted gross income is or how to calculate your deduction, talk to you tax attorney. For more information about how your tax attorney can help you please contact us at 913-735-4829