Casualty, Theft and Other Financial Losses
Casualty and theft losses can serve as itemized deductions and significantly reduce your taxable income if the loss is severe. It’s even possible to wind up with a net operating loss when the loss deduction is greater than income. U.S. tax attorney Richard S. Lehman can help you understand the tax treatment of casualty, theft and other financial losses and intervene on your behalf with the IRS when a question arises regarding your lawful deduction. Learn more about the tax treatment of these losses below, and call Lehman Tax Law for help with your legal tax matter.
A casualty loss for tax purposes must arise from a sudden, unexpected or unusual event, such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. If property was damaged but not completely destroyed and qualifies as personal-use property, then your casualty loss equals the lesser of your adjusted basis in the property or the decrease in the property’s fair market value. Fair market value can be determined through appraisal or the cost to repair the property.
If the property was completely destroyed and qualified as business or income-producing property, then the amount of loss equals your adjusted basis in the property.
The IRS defines a theft as the taking and removal of money or property with the intent to deprive the owner of it. For you to claim a deduction for a theft loss, the theft must have been illegal under the law of your state and done with criminal intent. The amount of the loss is your adjusted basis in the property.
Disaster Area Losses
Deductions for property loss in a disaster are limited to federally declared major disasters or emergencies declared by the president. You can generally deduct casualty and theft losses relating to your home, household items and vehicles caused by the disaster.
Issues Related to Deductions for Casualty, Theft and Other Financial Losses
You can’t deduct losses covered by insurance unless you file a timely claim for reimbursement and reduce the loss by the amount of any reimbursement or expected reimbursement. In addition to reducing the loss by any insurance or other reimbursement you receive or expect to receive, you must also reduce the loss by any salvage value of the property.
Your adjusted basis in the property is usually the cost of acquiring the property plus any improvements and minus any depreciation.
Losses are deductible in the year you sustain the loss. A personal casualty loss can offset a personal casualty capital gain for the tax year, so long as the loss doesn’t exceed the gain and is not attributed to a federally declared disaster.
Help With Casualty and Theft Loss Tax Issues From a U.S. Tax Law Expert
For help understanding the applicability of casualty, theft and other financial losses to your particular situation, including Ponzi scheme tax losses and clawbacks, call veteran tax attorney Richard S. Lehman of Lehman Tax Law at 561-368-1113 for a complimentary consultation.