Generally, you may claim an itemized deduction for any casualty and theft losses you suffered, relating to your home, household items, and vehicles. If your property was covered by insurance, you can deduct casualty and theft losses only if you filed a timely claim for reimbursement. Also, you must reduce the loss suffered, by the amount of any reimbursement you receive or expect to receive.
To be able to claim the deduction for the loss or damage to your property:
• You must first determine whether the loss has resulted from a casualty or theft under the IRS rules.
• You must complete Form 4684, Casualty and Thefts, to figure the amount of the loss, and the amount of that loss that you can deduct.
Defining a Casualty
The tax code defines a casualty as damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual, and includes any of the following:
• Natural disasters (earthquakes, storms, hurricanes, floods, tornadoes, etc.)
• Fires (except deliberately caused by the taxpayer).
• Shipwrecks.
• Terrorist attacks.
• Vandalism.
• Car accidents.
Under IRS rules, a casualty loss does not include loss caused from the normal wear and tear, or progressive deterioration of your property. Therefore, you cannot claim a casualty loss deduction for damage caused by any of the following:
• Termites or moths.
• Diseases.
• Progressive deterioration (for example, damage from continuous use of property).
• Drought.
• Arson committed by or on behalf of the taxpayer.
• Damage caused by ordinary accidents or willful acts or negligence (for example broken china, or damage done by a family pet).
Defining a theft
Theft is defined by the tax code as the taking and removing of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred, and it must have been done with criminal intent. Theft includes crimes such as:
• Blackmail.
• Burglary.
• Larceny.
• Embezzlement or extortion.
• Kidnapping for ransom.
• Robbery.
The onus is on you, the taxpayer, to prove your casualty and theft losses. To effectively prove your casualty losses, you must keep records, which show all of the following:
• The type of casualty.
• The date the casualty occurred.
• Evidence that the loss was a direct result of the casualty.
• Evidence that you owned the property, or were contractually liable for the loss, if it was leased property.
To prove a theft loss, your records must show the following:
• The date you discovered the property missing.
• Evidence that the property was stolen (a police report).
• Evidence that you were the owner of the property.
The primary objective of this article is to empower taxpayers to learn to do their own taxes. For detailed information on how to deduct casualty and theft losses, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3,” ($6.98) on TaxConnections.com
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