Many of us in Florida or Texas endured major hurricane events in 2017. If you suffered damage to property you may be able to deduct the property loss on your tax return as a casualty deduction. The IRS has very specific rules that govern how much property loss you can deduct. You’ll have to go beyond just estimating the value of the lost property.
First, you need to reduce any losses by the amount you are reimbursed from an insurance company since the deduction only applies to unrecoverable losses. Next, you need to determine what your actual loss is. The actual loss is the smaller of your tax basis in the property or the decrease in the fair market value. Generally, your tax basis in the property is how much you bought it for. For example, suppose you purchased a boat 3 years ago for $40,000. The boat is now worth $32,000 and is destroyed in a hurricane. For tax purposes, the loss is the decrease in fair market value since it is lower.
Once you’ve determined the actual loss you must reduce it by $100 and then by 10% of your adjusted gross income to arrive at the amount that you can claim as a deduction on your tax return. To claim the deduction, you must be eligible to itemize your deductions on schedule A. This means your total deductible expenses for the year exceed the standard deduction.
The government provides additional relief when the area you live in is a federally declared disaster area. For example, you can claim the loss in the year of the disaster event or the prior tax year. For further information, please click on the IRS links for Irma and Harvey below.
Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email: DGarcia@EK-FF.com.