By Keiter CPAs
As the hurricane season begins, we would like to remind our clients and friends that, depending on the circumstances, the IRS is ready to grant additional time to file returns and pay taxes. Both individuals and businesses in a federally declared disaster area can get a faster refund by claiming losses related to the disaster on the tax return for the previous year.
Following are helpful tips in Deducting Losses from a Disaster:
- Casualty losses occur from sudden, unusual or unexpected events.
- Normal wear and tear, natural deterioration and termite damage are not considered a causality loss.
- A timely claim for reimbursement must be filed if your property is insured.
- As a general rule, you deduct loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may deduct the loss on an amended return for the immediately preceding tax year.
- Determine the adjusted basis of the property before the casualty occurs. Next, determine the decrease in fair market value. Finally, subtract out any insurance or other reimbursements you received or expect to receive from the smaller of two amounts.
- Subtract $100 out of your casualty loss. Apply to each casualty loss separately.
- Casualty loss is reduced by 10% of your AGI.
- Do not include in the computation of your casualty loss any future profits or income due to casualties.
- Complete Form 4684, Casualties and Thefts, to report casualty loss on Federal tax return. The deduction is claimed as itemized deduction on Schedule A.
- Some of the casualty loss rules for business property are different than the rules for property held for personal use.
Hopefully we all avoid a disaster, but in the event one does occur, be prepared for the related tax filings to help you minimize the financial impact.
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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.