Fire, flood, tornado. Violent weather can wreak emotional and
financial havoc. If your home, vehicle, or other personal property is damaged
or destroyed by a sudden, unexpected casualty, an itemized tax deduction may
help ease the financial burden.
In most cases, you claim a casualty loss in the taxable year
the calamity strikes. However, if you're in a presidentially declared disaster
area, you have the option of amending your prior year return, thereby getting
tax relief sooner.
Either way, to receive the maximum benefit you'll need to
calculate the amount of your loss. Here's how.
1. File an insurance claim.
If your property is insured, file a timely claim. Otherwise, you'll only be
able to take a deduction for the part of the loss that isn't covered by
insurance.
2. Get an appraisal.
An appraisal determines the decline in fair market value caused by the
casualty. Tax rules require that you measure the difference between what your
home or property would have sold for before the damage and the probable sales
price afterward. Your loss is the lesser of this decline or your adjusted basis
in the property.
3. Establish basis.
Generally, your home's adjusted basis is what you paid for it, plus
improvements. If your records were lost in the casualty, recreate them using
reasonable estimates or the best information you have.
4. Keep receipts for repairs.
In some situations, repairs you make to restore your property to its
pre-casualty condition can be used as an indicator of the decline in the fair
market value.
The aftermath of a casualty is often a stressful time. We're
here to help you resolve the tax issues. Please give us a call.
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