Vrakas CPAs, Here Are Your Articles for Wednesday, October 11, 2017
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How to Get a Tax Break After a Disaster


Damage from natural disasters, fire, accidents, thefts or vandalism is often tax-deductible if the loss is major and not covered by insurance or other reimbursements. If your area receives a federal disaster designation, you may be able to claim the loss sooner. If you suffer damage to your home or personal property, follow these IRS-provided tips to help you determine what events get you a tax break:

  1. Casualty loss — Taxpayers may deduct a loss based on damage to property in a sudden, unexpected or unusual event, including hurricanes, tornadoes, floods and earthquakes. Losses from accidents, thefts or vandalism apply as well.
  2. Normal wear and tear — If you have progressive deterioration from age or termite damage, there is no possible deduction.
  3. Covered by insurance — If you've insured your property, file a timely claim for reimbursement for your loss or else you won't be able to deduct it as a casualty or theft. Reduce your loss by the amount of reimbursement you received or expect to receive.
  4. When to deduct — Deduct a casualty loss in the year it occurred. However, if you've had a loss from a federally declared disaster, then you have a choice regarding when to deduct the loss: File in the year it occurred, or you can file an amended return for the immediately preceding tax year.
  5. Amount of loss — The calculations can be fairly complex. Basically, you have to determine the adjusted basis for the property before the casualty and determine the decrease in fair market value of the property as a result of the casualty. FMV is the price for which a person could sell the affected property to a willing buyer. A decrease in FMV is the difference between the property's FMV immediately before and after the casualty. Finally, you have to subtract reimbursements from insurance companies or others that have been received — or that you expect to obtain — from the smaller of those two amounts.
  6. $100 rule — After figuring the casualty loss, reduce the amount by $100. This reduction applies to each casualty-loss event during the year. It doesn't matter how many pieces of property are involved in an event.
  7. 10 percent rule — Reduce the total of all casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
  8. Future income — Don't consider the loss of future profits or income due to the casualty.
  9. Form 4684 — Complete the Casualties and Thefts form to report the casualty loss on a federal tax return. Claim the deductible amount on Schedule A, Itemized Deductions.
  10. Business or income property — Some casualty loss rules for business or income property are different than the rules for property held for personal use.

This is just the beginning of what can be a complex process. Fortunately, we can help walk you through every step, to make sure you get what you're entitled to.


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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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