Phoenix CPA | Casualty Losses
Do you live in an area that could suffer from a natural disaster like an earthquake, tornado or hurricane? 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 a few tips to keep in mind about deducting casualty losses.
- You may be able to deduct losses based on the damage done to your property during the disaster. A casualty is a sudden, unexpected or unusual event. These may include hurricanes, tornados, floods, earthquakes, fires, theft, accidents or vandalism.
- A casualty loss does not include losses from normal wear and tear, progressive deterioration from age or termite damage.
- If your property is insured, you must file a timely claim for reimbursement of your loss. If you fail to fail to file a timely claim, you will not be allowed to deduct the loss as a casualty loss. You must reduce your loss by any insurance reimbursement you received.
- You must deduct the casualty loss in the year the loss occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for year the loss occurred or on amended return for the preceding year.
- To figure your loss, follow the following steps:
- Determine the adjusted basis in the property before the casualty
- Determine the decrease in fair market value of the property due to the casualty
- Subtract any insurance reimbursement received from the smaller of these 2 amounts
- After you have figured your casualty loss on the property you must reduce that loss by $100
- You must then reduce the total of all of your casualty losses by 10% of your adjusted gross income.
- Complete for 4684 to help calculate and report your casualty losses.
If you have any questions, feel free to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.