When a disaster, theft, or other unexpected event leads to the damage or loss of property, the IRS allows you to deduct that loss on your tax return. You can determine the value of the deductible loss by evaluating the cost and fair market value of each item impacted by the casualty or disaster; whichever amount is less is the deductible loss. Simply add up the deductible loss for all of the items to determine your total casualty loss deduction.
However, it’s important to remember that any insurance reimbursement reduces the amount of your casualty loss deduction. If your insurance reimburses you for the fair market value of the items lost, in most cases, you will not have a deductible casualty loss. If only part of your total casualty loss was covered by your insurance payment, you may be able to deduct the balance on your tax return.
If you receive full insurance reimbursement, it’s important to not also claim a casualty loss for those items. Doing so can lead to underpayment of taxes and subsequent tax problems.
Have questions about casualty losses, insurance, and your taxes? Taxation Solutions, Inc. can help you sort through your tax situation to ensure everything is filed correctly. We understand that dealing with tax complications after you’ve already been impacted by a disaster or casualty loss can be frustrating and overwhelming, and we are standing by to help. Contact our compassionate team now!