Our series on itemized deductions continues with an explanation of casualty theft and disaster losses that can be claimed as a tax deduction. Here is how each of them breaks down:
What is a Casualty Loss Tax Deduction?
A casualty loss can result from the damage destruction or loss of your property from any sudden unexpected or unusual event such as a flood hurricane tornado fire earthquake or even volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration.
What Tax Deduction Can be Taken Due to Theft?
A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and it must have been done with criminal intent.
Many do not realize that losses due to theft of this nature can to a certain extent be a deduction on your tax return. The amount of loss you can claim is the lesser of the adjusted basis of your property or the decrease in fair market value of your property as a result of the casualty or theft loss. For property held by you for personal use once you have subtracted any salvage value and any insurance or other reimbursement you must subtract $100 from each casualty or theft event that occurred during the year. After all of the amounts have been added up 10% of your adjusted gross income is subtracted from that in order to calculate your allowable casualty and theft losses for the year.
You may not however deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement through your insurance company. When that occurs you must reduce the loss by the amount of any reimbursement.
Some of these adjustments could be waved under special circumstances which are released by the government during natural or severe disasters. There are several rules and exceptions that may apply to you and could help you during your time of loss. Let Lindemeyer CPA put our experience to work for you and help you through this difficult time.
For more information about tax deductions or how Lindemeyer can assist you or your business with critical tax information visit our website for more information.