The Tax Breaks That Come with Disasters

While the tax code allows you to claim deductions for household damage caused by thefts, vandalism, fires, floods, hurricanes, and others kinds of casualties, there are some restrictions.

·         Relief is available only for uninsured losses

·         They must be reduced by any settlements you receive, or expect to receive, from your homeowner's or renter's insurance

·         No write-off for the first $100 of each theft or casualty loss

·         Total losses generally are allowable only to the extent that they exceed 10 percent of adjusted gross income, the amount listed on the last line of the first page of the 1040 form

For those with large deductions that surpass the 10 percent threshold, many are unable to authenticate their losses, due to inadequate records and a reliance on estimates, assuming they are able to recall each item that was lost – a nearly impossible feat.

A U.S. Tax Court, in one case, emphasized that it “bears heavily” against taxpayers who base their estimates only on recollections, versus written records.

The IRS wants to aid those who are impacted by thefts, casualties or disasters, offering a free guide, entitled Publication 2194, Disaster Losses Kit for Individuals.

It includes a workbook to list contents on a room-by-room basis.  Alongside each property item are seven columns in which to record the following details: number of items, date acquired, cost, value before the loss, value after the loss, decrease in value, and amount deductible as a loss.

The workbook is invaluable in inventorying household goods and personal property; it’s prudent to keep a copy outside your home in a safe deposit box or other secure location.

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