May 19, 2016|
If you ever suffer damage to your home or other personal property, you may be able to claim a portion of these casualty losses as deductions on your federal income tax return. Sudden, unexpected or unusual events, such as a natural disaster (hurricane, flood, tornado, earthquake, etc.), fire, accident, theft or vandalism are considered casualty losses. Losses from normal wear and tear or progressive deterioration from age or termite damage, would not fall under this classification.
What should you know about deducting casualty losses?
When to deduct. Generally, 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 the option to deduct the loss 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. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)
$100 rule. After you’ve 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 doesn’t 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 (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.
If you have questions about claiming losses from an event that classifies as a casualty loss, we're here to help.