Disaster Assistance Through The Irs

Every year millions of people have property damage from unexpected events There seems to be a rise in natural disasters occurring all around us, from the western earthquakes to the southern hurricanes Although we rarely think of the IRS and our taxes when disasters happen, it can actually be a place to find some relief from the financial burden A casualty loss deduction can often help offset losses

The IRS considers a casualty as the damage, destruction or loss of property resulting from a sudden, unexpected or unusual event The casualties that we automatically think of for deduction are auto accidents, hurricanes, civil disturbances, earthquakes, explosions, fires, floods, hail, ice and snow, vandalism, winds and tornados Other incidences will also qualify including theft from larceny, robbery and embezzlement

Really, the thing that qualifies you for a casualty deduction is simple The event that causes the damage or loss must be sudden and swift, not slow and progressive If your bathroom has water damage from a slow leak between tiles, you do not have a deduction If the pipe freezes and breaks, ruining your carpet and walls, your loss qualifies for deduction Non-deductible losses include termites, dry rot, corrosion and rust

The deductible amount is determined through several calculations First, you must determine the fair market value of the property before and after the damage This is the price for which you would be able to sell the property Next, establish your basis in the property This is your cost plus improvements, less any depreciation Your loss is the lesser of the two calculations

For example, the IRS cites the destruction of a painting worth $100,000 as a total loss The painting was originally purchased for $1,000 The decrease in market value is $100,000 since it was completely lost But the buyer’s basis is only $1,000 The deductible loss is limited to $1,000, because the buyer’s actual investment in the property is less than the decrease in value

This deduction is only available if you file a timely insurance claim If you choose not to file, you can only deduct the portion of the loss that would not have been covered by insurance

If the area in which the property exists is declared a federal disaster by the President, you have the option of deduction the loss on the previous year’s tax return This allows for an immediate tax benefit Other casualties and losses are deductible only in the year the event took place

By declaring a casualty or theft deduction, you can help minimize the financial impact of a disaster But you must always make sure that your deduction is backed up by paperwork Deductions can be a red flag to the IRS, so make sure that you retain information that supports your submitted loss Keep photos of the lost or damaged items, receipts and appraisals and police reports as proof of loss

Sometimes, we don’t know that certain deductions exist By being informed of what is deductible, you can help your accountant give you the best return possible

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Tags | accidents, burden, casualty, deductible, disasters, disturbances, explosions, incidences, larceny, natural, result, unexpected