Let’s hope no one ever experiences something tragic to need to utilize these tax tips. But if it happens, these are here to guide you through the tough times and help with the financials so you can focus on what really matters.
Disaster Loss Tax Tips
For any damage done to your property during a disaster, a loss might be able to be claimed. Examples of disasters:
If you have insured your property, file a claim for reimbursement. Then reduce the loss by the amount of reimbursement you receive. If you don’t file the claim within a reasonable amount of time, you will not be able to deduct the loss.
It’s best to deduct a casualty loss in the year it happened. One exception is if it is a federally declared disaster, in which case you may have a choice of when to deduct. For example, a disaster occurring in 2017 may be possible to claim on 2016 taxes with an amended return, thus potentially decreasing taxes for that year and resulting in a refund right away.
- Calculate the adjusted basis in the property value before the disaster – usually the cost to you. If you’ve acquired the property such as through inheritance, the basis will be calculated differently. Learn more at the IRS website.
- Determine the decrease in fair market value of the property after the disaster has occurred.
- Subtract any reimbursement you’ve received from insurance or any other sources.
Do not include any future profit or income loss estimates here.
To report it on your federal taxes, fill out IRS Form 4684, and record any itemized deductions on Schedule A (Form 1040).
Business vs personal use property
There are some variations in law between business/income property and property for personal use. Directions on how to fill this out are included on your form.
If you’re experiencing a situation like this and do not want to handle it on your own or are feeling overwhelmed, don’t hesitate to reach out and one of our tax professionals will be happy to assist you!