Brady Ware Co. writes: Casualty Loss Basics Question: My home suffered major damage after a horrible storm. Do I get a tax break for a disaster like this?
Answer: Possibly. When a natural disaster–such as a
tornado or hurricane–strikes your home or business, the results can be
devastating — especially if the losses aren’t fully covered by insurance
or your insurance claim is contested.
Fortunately, you may be able to get help from Uncle Sam by claiming a
casualty loss deduction on your tax return. If your region is
officially designated as a “presidentially declared disaster area” you
don’t even have to wait until you file your next tax return. You may be
able to file an amended return for last year and get a quick tax refund
for fast financial relief.
Claiming the loss on a return for last year will get you an earlier
refund, but waiting to claim the loss on this year’s return could result
in a greater tax saving, depending on other income factors.
If you suffer a casualty or theft loss, you generally may deduct the
amount of your unreimbursed loss only to the extent that your losses for
the year exceed 10 percent of your adjusted gross income (AGI) for the
year. (Special rules apply to losses in federal disaster areas.) Before
the 10 percent limit is applied, you must subtract $100 for each
casualty or theft occurrence.
Casualty Loss Tax Deduction Example
Let’s say the storm damage to your home is estimated at $200,000. But
the insurance only covers $150,000. Your AGI is $100,000. After
subtracting $100, your deductible loss is limited to $39,900 ($50,000
unreimbursed amount minus $100 minus 10 percent of your $100,000 AGI).
However, there are no limits on losses for business or
income-producing property such as rental real estate. In other words,
you can write off business losses without applying the 10 percent limit
or the $100 per casualty amount applied to personal losses. So if your
business suffered $50,000 of damage that was not reimbursed by
insurance, the entire amount would be deductible (assuming your tax
basis in the damaged assets was at least $50,000).
To claim a property loss, for tax and insurance purposes, you must be
able to prove that a disaster took place. Keep copies of newspaper
clippings and police reports. Take photos or videos after a casualty. If
you have any “before” and “after” pictures or videotapes, they can help
back up casualty loss claims of the disaster. This kind of detailed
documentation may also be necessary to get insurance reimbursement and
to apply for FEMA grants and SBA loans.
In addition to compiling records and other proof, you may also have
to substantiate the value of the property loss by getting an independent
appraisal from a real estate expert. (The cost of the appraisal and the
cost of obtaining photographs or videos may be deductible as a
miscellaneous expense.)
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