Violent weather can wreak emotional and financial havoc. If your home, vehicle, or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.
In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a federally declared disaster area, you have the option of amending your prior year return. Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.
File an insurance claim. If your property is insured, file a timely claim.
Get an appraisal. An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward.
Establish basis. Generally, adjusted basis is what you originally paid for the damaged property, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.
Keep receipts for repairs. In some situations, repairs you make to restore your property to pre-casualty condition can be used as an indicator of the decline in the fair market value.
Remember, you’re not alone. In the aftermath of a casualty, we’re here to help you resolve the tax issues.
Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.