Violent weather can wreak emotional and financial havoc. If your home, vehicle, or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.
In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a federally declared disaster area, you have the option of amending your prior year return. Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.
File an insurance claim.
If your property is insured, file a timely claim.
Get an appraisal.
An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward.
Generally, adjusted basis is what you originally paid for the damaged property, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.
Keep receipts for repairs.
In some situations, repairs you make to restore your property to pre-casualty condition can be used as an indicator of the decline in the fair market value.
Remember, you’re not alone. In the aftermath of a casualty, we’re here to help you resolve the tax issues. Schedule your free consultation today.