If a natural disaster damages your property, you have undergone a casualty loss, which can be deductible as an itemized deduction on your federal income tax return.
As a rule of thumb, to be considered a casualty loss, it must be caused by an “Act of God”. Simple wear and tear over time does not count. One type of casualty loss is damage to property caused by earthquakes and fires. You may take a deduction for casualty losses only to the extent that the loss is not covered by insurance.
Where your disaster loss exceeds your current income, you may carry back the excess loss three years to get refunds of prior years’ federal tax payments. If you still have some unused loss, you may carry it forward for up to 15 years.
What happens if you do not repair or replace the damage? You are entitled to the deduction when the loss occurs. You do not have to fix the damage to claim tax deductions.
Casualty losses are always deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster, you have another option: You can treat the loss as having occurred in the prior year, and deduct it on your return or amended return for that tax year. This way, you can get a quick tax refund.
For your records, you will need to have the following:
► Documents showing that you owned each asset you claimed was damaged or destroyed—for example, a deed or receipt.
► Contracts or purchase receipts showing the original cost of the item, plus any improvements you made to it.
► An appraiser can determine the value before and after the earthquake and subtract the two; the difference is your disaster loss.
This road to recovery also applies to storm, fire and theft damages. It will lead to a less painful recovery by allowing the government to help pay for the costs of repair and/or replacement.
To learn more about the Center, please visit our web site at http://www.calstatecompanies.com