With severe weather events seemingly on the rise, it’s more important than ever to understand casualty losses and what they mean for your tax return. If your home or business has been impacted by tornadoes, floods, or other disastrous acts of nature, recouping what you can in casualty loss deductions is an essential step to getting your finances back in order.
For business owners, it’s reassuring to know that business casualty losses are 100% deductible (reduced by the amount of any insurance reimbursement). Homeowners, on the other hand, are required to subtract $100 from personal casualty loss claims for each event, and then reduce the total claims for all events by 10% of your adjusted gross income for the year. As with businesses, any casualty loss is reduced by the amount of any insurance reimbursement for homeowners.
What exactly is a covered casualty loss? Generally, a casualty is defined as the damage, destruction, or loss of property caused by a sudden or unexpected occurrence. When the President declares a disaster to aid recovery efforts, the casualty losses from that region are considered disaster losses.
As for how to determine the sum of your casualty losses, you’ll need to price out each item by comparing its cost and its fair market value and taking the lesser of the two amounts. Once every item has been accounted for, you can then total the amounts to arrive at your casualty loss.
Unless you have disaster losses to claim, your casualty losses must be deducted in the year they took place. You have a little more leeway with disaster casualty loss claims, since they can be taken in the year of the loss or the year before.
Of course, if you’re reimbursed by your insurance for the full extent of casualty losses, then you’re not eligible to claim this deduction on your tax return. To learn more about how to handle personal or business casualty losses, put in a call to Taxation Solutions, Inc. Serving the greater St. Louis area, we’re here to help you recover from losses in the wake of costly disasters.