- September 27, 2017
- Posted by: irstaxfighters
- Category: Tax relief
Yes, damages from a storm that are not reimbursed are tax deductible. They are deducted on schedule A on the individual income tax return form 1040 and for businesses are deducted on the appropriate business tax return with other expense items. In order to take the deduction, you need to know the items that were lost, their original cost or other basis, the fair market value immediately before the loss and the fair market value after the loss.
The best way to do this is to make a list of all items lost or damaged, and assign values to each item. You can refer to lists like the Salvation Army Donation Value Guide to help with assigning fair market values. However, keep in mind that the Salvation Army list is just a suggested valuation. Many items vary greatly in original cost and therefore may have different valuations. There are also online resale websites that can be used for valuation. Taking pictures of the damage to support your list is helpful as well. However, the list is the most important item to have. If you have receipts, or can get copies of receipts showing the original cost of some of the more expensive items, then that is good to keep for your records as support for your deduction in case of an audit. For individuals, the tax deduction is subject to 10% of your adjusted gross income which means that the amount of deduction the IRS allows is the amount that is higher than 10% of your adjusted gross income. For businesses, the items deducted will be items that still had a basis above zero because not all of the original expense was deducted on a previous tax return.
The IRS allows individuals and businesses to take losses sustained in federally declared disaster areas in either the year prior to the year the loss was sustained or the year the loss was sustained. So, for those losses sustained with Hurricanes Harvey and Irma, the prior year is the 2016 tax return and the year of loss is the 2017 tax return.
Casualty loss deductions can be a good way to recover some money lost due to catastrophic or theft losses that are not covered by insurance or reimbursed by any other organization.
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