This article is part 2 of a three-part series which discusses how to determine the amount of the loss for personal use and income producing property, amount deductible, and tax year for the deduction (part 1 can be found here). We will discuss gains, including deferring the gain for income producing property by purchasing replacement property-qualifying property, time period for replacement, realized and recognized gain, and basis of new property in the final installment.
Tag Archive for Form 4684
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, Read more
A casualty is a sudden unusual and unexpected event that damages or destroys your property. A sudden event is one that is swift. Unexpected is an event that is not anticipated and is unintended. An unusual event is one that is not-day-to day and is not typical of the activity for which the asset is normally used. To have a casualty, chance or a natural phenomenon must be present. Examples include fires, windstorms, tornadoes, hurricanes, floods, sudden landslides, vehicle accidents, theft, broken water pipes, and vandalism. Loses that are progressive and occur gradually over a period of time are not qualifying casualty losses. Examples are rust, erosion, drought, water damage from leaking windows or gutters, and termite damage. Lost items are also not casualties. Read more
If you take one look at FEMA’s website, it’s clear that we are going to see a significant increase in the number of casualty losses going forward. Should you find yourself a victim of a disaster or a casualty or theft loss it is very important that you know what you are entitled to from a tax perspective.
The best resource for this besides the US Tax Code is IRS Publication 547, Casualties, Disasters, and Thefts. Be sure to review before or as part of preparing IRS Form 4684 when reporting to the IRS. Another good resource of course is the Instructions to the Casualty and Loss Reporting Form 4684.
Most people understand the proper tax treatment of what is often referred to as “standard” casualty and theft losses.
1. calculate the cost basis of the property before the loss
2. determine the decrease in the fair market value of the property as a result of the loss.
3. From the smaller of the two, deduct any insurance or other reimbursement received.
4. Using IRS Form 4684 apply the deduction limits to determine the amount of our deductible loss.
Here is where it starts to get convoluted. Each loss must be reduced by $100. And you further reduce the total of all losses by ten percent of your adjusted gross income.
It’s also important to remember that the loss must be reported the year in which it has occurred.
Before deducting the loss, you must be able to prove that there was a loss. If the loss is from theft for example: Read more