Many people are not aware, and thankfully so, that in some instances the IRS will give a tax deduction for casualty, theft, and disaster losses relating to a home, household items, vehicles, and other tangible personal property owned by individuals.
Casualty and disaster deductions apply to losses from the long-term result of damage or destruction due to:
- Volcanic Eruptions
Yes, even volcanic eruptions. Normal wear and tear or progressive deterioration of a piece of property does not count as a casualty or disaster loss.
Theft is just what it sounds like: the illegal removing of property with the intent to deprive the owner of it.
How much of a loss may I take?
- For personal property, your loss is generally limited to the adjusted basis of the property.
- If business or income-producing property is completely destroyed, your loss is also the adjusted basis, which would reflect any depreciation.
- Whether casualty, theft or disaster loss, it must be reduced by any salvage value. Hence if your property is damaged, but still has some value, you must subtract the salvage value from the basis to determine the amount of loss.
Individuals can claim their casualty and theft losses as an itemized deduction on form 1040 Schedule A; however, this loss can be limited. For every loss you must first subtract any insurance reimbursement, and then subtract an arbitrary figure of $100, yielding the amount of your applicable loss from theft or casualty. Once you have that figure, you compare it to 10% of your Adjusted Gross Income (AGI). The amount that is over 10% can be deducted, and you can use it to save taxes.
This is a deduction I hope you never have to take. Because of Hurricanes Sandy and Irene, many of my fellow New Yorkers in the last few years did get to take advantage of this deduction, but it is not a deduction that anyone would look forward to.
If you have any questions concerning casualty and theft loss deduction, the IRS can help you with the following publications:
Publication 547 – Casualties, Disasters and Thefts
Publication 551 – Basis of Assets
Publication 584 – Casualty, Disaster and Theft Loss Workbook (Personal Use Property)
As always, you can contact your tax consultant with any questions you may have, or call us at 914-682-7007.