If you suffer damage to your home or personal property, you may be able to deduct the
losses you incur on your federal income tax return. Here are some things you should
know about deducting casualty losses:
- Casualty loss. You may be able to deduct losses based on the damage done to your
property during a disaster. A casualty is a sudden, unexpected, or unusual event,
such as a natural disaster (e.g., a hurricane, tornado, flood, or earthquake),
fire, accident, theft, or vandalism.
- Normal wear and tear. A casualty loss does not include losses from normal wear
and tear or progressive deterioration from age or termite damage.
- Covered by insurance. If you insured your property, you must file a timely claim
for reimbursement of your loss. If you don't, you cannot deduct the loss as a
casualty or theft.
- When to deduct. As a general rule, you must deduct a casualty loss in the year it
occurred. However, if you have a loss from a federally declared disaster area,
you may have a choice of deducting the loss on your return for the year the loss
occurred or on an amended return for the immediately preceding tax year.
- Amount of loss. Your loss is generally the lesser of (1) your adjusted basis in
the property before the casualty (typically, the amount you paid for it); or (2)
the decrease in fair market value of the property as a result of the casualty,
reduced by any insurance or other reimbursement you received or expect to receive.
- $100 rule. After you have figured your casualty loss on personal-use property,
you must reduce that loss by $100. This reduction applies to each casualty loss
event during the year. It does not matter how many pieces of property are
involved in an event.
- 10% rule. You must reduce the total of all your casualty or theft losses on
personal-use property for the year by 10% of your adjusted gross income.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015