All posts for the day July 12th, 2012
If your home is damaged during a federally declared disaster or by vandalism or theft, you may be able to claim special tax deductions. Here’s the fine print.
Calculating casualty losses : A common misconception about casualty loss deductions is that they equate to the property’s replacement value. Not so. The amount you can deduct is the lesser of the property’s decreased value or its adjusted basis. When the president declares a disaster, taxpayers are eligible for additional relief. To figure your loss, the IRS requires you to determine the fair value of your personal property. Personal property could be anything from a big-screen TV to an entire house. Here’s a simplified way to calculate your deduction:
- Once you place a value on the personal property, subtract any reimbursements received, such as an insurance settlement.
- From that amount, you subtract $100, a requirement known as the $100 rule.
- Then you subtract 10% of your adjusted gross income (the 10% rule).
- What remains is your deductible loss.
FEMA keeps a list of major disaster declarations and emergency declarations that are eligible for favorable tax treatment. When in doubt, check with FEMA or call the IRS disaster hotline at 1-866-562-5227.
Take disaster deductions wisely, it’s important to document your deductions, keep careful records, including photos, receipts, and insurance claim reports. Your state taxes can also be affected by disaster losses. How and by how much varies from state to state, and usually depends on the severity and scope of a disaster.