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.
Please contact us for further information or ask about deducting losses from a disaster.
I am the partner-in-charge of the Rochester, MN, office. I provide tax services to individuals, businesses and agricultural clients. I also provide compilation services and am a Certified QuickBooks ProAdvisor.
