What Is a Casualty Loss?
A casualty loss usually results from a sudden, unexpected event that damages, destroys, or causes loss of property. Casualty losses are not to be confused with disaster losses, which are casualty losses that occur in a federally designated disaster area.
The difference is that casualty losses must be taken in the year they occur, while disaster losses can be taken in the year of the loss or the year prior to the loss.
Types of Casualty
When you are claiming a casualty loss, you must first determine if the loss is personal or business-related. Business losses are fully deductible without any limitations at all, so you will be able to claim the full amount of the loss.
Personal casualty losses, however, are a little more complicated. First, you have to reduce the amount of the loss by $100 for each individual event. Then reduce your total loss by 10% of your AGI (adjusted gross income). The amount that remains is the amount you can deduct on your return.
Determining Casualty Loss Amounts
The first step to determining the amount of your loss is accurate record-keeping. Make sure that you keep up-to-date photos of your home, business, property, vehicle, and anything else that might be damaged due to weather or another unexpected event. This can help you, your tax preparer, and your insurance company determine how much your assets were worth prior to the event.
When determining the amount of your loss, you must compare the price you originally paid to the current market value of the item. The smaller number of the two will be the amount you can deduct.
Casualty Losses and Insurance Reimbursement
It’s important to note that your casualty loss claim must also be reduced by the amount your insurance company reimbursed you. This is to prevent “double dipping,” as it were. For example, if you were insured and received reimbursement for 100% of the market value of your loss, you cannot claim any deduction on your tax return because your losses were already recovered.
Not sure how to approach your casualty loss deduction? For more information, advice, and assistance, make sure to contact Pro Tax Resolution We’re happy to help!