An unexpected casualty can wreak havoc emotionally and financially. An itemized tax deduction may help ease the financial burden if your home, vehicle, or other personal property has been damaged or destroyed by an unforeseen disaster.
Typically, you claim a casualty loss in the taxable year the disaster happens. But, if you’re in a federally declared disaster area, amending your prior year return is an option. To receive the maximum benefit in either case the amount of your loss will need to be calculated. The following guidelines can help you prepare.
File an insurance claim. File a timely claim for your property with your insurance company.
Get an appraisal. The decline in fair market value caused by the casualty will be determined by an appraisal. The tax rules require that you measure the difference between what your home or property would have sold for before the damage and what it was likely to sell for after the damage.
Establish basis. Adjusted basis is what you originally paid for the damaged property, plus any improvements that were made. You may have to recreate them using reasonable estimates or the best information you have if your records were lost in the casualty.
Keep receipts for repairs. Sometimes, 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 of the property.
If you need additional guidance, please give us a call. We are here to help you resolve any tax issues in the aftermath of a casualty.
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