Though people have reached outer space and there are talks about travel to the moon for the common man, we are still unable to find ways to deflect nature’s fury when it attacks each season. Hurricanes and tornadoes rip homes apart every year; since we can’t escape them we should at least learn to mitigate our losses and keep our finances as safe as possible.
As an honest taxpayer, you must be aware that should your property be damaged during a natural disaster you can deduct the loss incurred in your federal income tax returns, and in the event, your region itself is devasted your claims will be processed fast. You must also be aware that you can deduct only if you are not covered by insurance. Those covered by insurance must act fast and claim for reimbursement as soon as possible or your claim will become null and void.
When to deduct your losses
You can deduct a casualty loss only when your property is damaged during a natural disaster like a hurricane, tornadoes, floods or earthquake. Sometimes casualty loss also includes vandalism, theft, and fire. For the normal wear and tear and even termite damage, you cannot claim losses.
How to deduct losses
You can, as a rule, deduct losses only in the year of disaster unless your region has been declared a disaster zone. In such circumstances, you can decide when you want to deduct the loss – either the year of damage or on the returns of the previous year. Thus, for damage in 2018, you can deduct losses from 2017 tax returns and thus lower the tax for that year.
Before you deduct the loss, you must calculate the incurred loss. Follow the below steps to estimate your loss.
- To begin with, you must be aware of the basis (the capital investment on the property) of your property before disaster strikes. For a property that you bought it will be the cost while for an inherited premise the basis determination is a little more complex. It is normally the fair market value of the property at the time of the demise of the decadent.
- So, you can calculate your loss by deducting the difference between the fair market value after the casualty and before it.
- You must also deduct any other form of reimbursement that you hope to get for the house either from insurance or other source and then present the final loss.
- As a rule, you must reduce $100 on the total loss incurred after a natural disaster. You can claim $100 on any such number of a natural disaster during the year.
- You must reduce the loss by 10% of the total annual Gross income of the taxpayer. If the loss exceeds this amount only then can you deduct it otherwise the loss is yours to bear. You cannot include loss incurred on any future profits you hope to receive on the property.
- Fill up form 4684 to file for loss on your tax returns.
We cannot stop natural calamities nor can escape the repercussions but we can do is at least reduce our losses and hope for a more financial stability.