Disaster Loss Deductions
Hi, I'm Kim, and I work for the IRS.
Let's talk a moment about how to deduct the loss of your property after a disaster strikes.
A casualty loss is the damage, destruction, or loss of property resulting from a disaster.
Generally, you can deduct casualty losses relating to your home, household items, vehicles, and income-producing personal or business property on your federal income tax return.
You generally must deduct a casualty loss in the year it occurred.
However, if your property was damaged as a result of a federally declared disaster, you can choose to deduct that loss on your return for the tax year immediately preceding the year in which the disaster happened.
A list of federal disaster areas is available at the Federal Emergency Management Agency Website at www.fema.gov.
If you elect to deduct your allowable loss on your prior-year return, you must generally do this by the due date of the return, without extensions, for the year in which the disaster actually occurred.
If you have already filed your return for the preceding year, you may claim the loss by filing an amended return, Form 1040X.
To determine the amount of your casualty loss, you must: 1. Determine your adjusted basis in the property before the casualty. 2. Determine the decrease in fair market value of the property as a result of the casualty. 3. And from the smaller of the two amounts you determined in steps one and two, subtract any insurance or other reimbursement you received or expect to receive.
Here are three helpful sources to assist you with deducting your casualty losses.
Calculate and report your losses on Form 4684, Casualties and Thefts.
Look at IRS Publication 551, Basis of Assets, to help you figure the adjusted basis in your property.
And Publication 547, Casualties, Disasters and Thefts, explains how to determine the decrease in the fair market value of your property as a result of the disaster.
It also explains the tax treatment of casualty losses and provides definitions and examples to assist you in calculating your allowable loss.
For more disaster-related information, log on to the IRS Website at IRS.gov. and enter "Disaster" in the search box.