Taking a Casualty Loss, the news is filled with stories of people losing their property and even their entire homes to hurricanes, tornadoes, fires, and winter storms. If you have suffered a property loss, you may be able to claim a \”casualty loss\” tax deduction.
A \”casualty\” is the destruction of property from some sudden, unexpected, or unusual event. Progressive deterioration for example, from termite infestation or a slow furnace leak does not qualify.
Personal Property Loss
If your destroyed property was held for personal (nonbusiness) use, your casualty loss will be the lesser of (1) the decline in the property\’s value or (2) your basis in the property (usually, its cost). This calculated loss must be further reduced by any salvage value or insurance proceeds received.
Two additional tax rules apply before you can take the deduction. First, the loss must be reduced by a $100 \”floor.\” Second, the deduction is allowable only to the extent it (combined with any other casualty losses) exceeds 10% of your adjusted gross income (AGI).
Bill\’s AGI is $80,000. A storm blows a tree down, causing $20,000 in damage to his house, which he purchased for $200,000. The insurance company gave him $10,000 for the loss. To begin calculating his deduc- tion, Bill takes the lesser of his basis ($200,000) or the damage ($20,000). After making a reduction for the insurance payment and the $100 \”floor,\” Bill has a potential $9,900 deduction. However, the deduction is limited to the amount that exceeds 10% of his AGI ($8,000), so his casualty loss deduction will be $1,900.
To take a casualty loss deduction for personal property, you must itemize your deductions on Schedule A and complete Form 4684, Casualties and Thefts.
Business Property Loss
For trade or business property that is totally destroyed, the amount of the loss is equal to the property\’s adjusted basis. This rule prevents a business from taking a casualty loss deduction for more than the depreciated value of the property.
If property is held partly for personal use and partly for business use, it must be treated as two separate properties, and the loss must be allocated appropriately.
Federally Declared Disasters
If the property was damaged as the result of a federally declared disaster, you may elect to deduct the loss in the tax year before the loss was incurred. This may be done by filing the return, an amended return, or a refund claim on or before the later of (1) the due date of your return for the year in which the disaster occurred, not considering any filing extension, or (2) the due date of your tax return for the immediately preceding year, including any filing extension you obtained. Making the election may enable you to secure a tax refund earlier.
17 Corporations: Calendar-year corporations file 2013 tax return (Form 1120) and pay any tax due. S corporations file Form 11 20S. For an automatic six-month filing extension, file Form 7004 and deposit the estimated tax due. 31 Employers: Electronic filers must file 2013 Forms W-2 with the Social Security Administration.
15 Individuals: File 2013 income-tax return (Form 1040, 1040A, or 1 O4OEZ) with the IRS. For an automatic six-month extension, file Form 4868 and deposit the estimated tax due.
15 Individuals: Pay the first installment of 2014 estimated tax with Form 1040-ES.
15 Partnerships: File 2013 calendar-year partnership return (Form 1065). For an automatic five-month extension, file Form 7004.
15 Corporations: Deposit first installment of 2014 estimated tax.
30 Employers: File Form 941, Employer\’s Quarterly Federal Tax Return; quarterly deposit due for those who meet the safe harbor requirements.
12 Employers: Deforrod duo date. for Form 941, if timely deposits were made.
15 Exempt Organizations: File 2013 Form 990, 990-EZ, or 990-N, if the organization reports on a calendar-year basis.