Losing personal or business property due to a casualty, i.e. fire, flood, hurricane, or theft or other similar event is devastating, but some casualty or theft losses can be recouped through income tax breaks on your tax return.
If you have a casualty or theft loss, you may be entitled to a casualty or theft loss tax deduction on your tax return. A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual in nature. It can also be a government-ordered demolition or relocation of a home that's unsafe because of a disaster.
Other examples of casualty losses include car accidents, fires, and vandalism. If your property is covered by insurance, you cannot deduct on your tax return a casualty or theft loss unless you file a timely insurance claim for reimbursement. If insured, a claim must be filed even if no reimbursement is expected.
Some casualty or theft losses are not tax deductible on your IRS tax return, such as the ones below:
- Accidental loss of a ring from your finger;
- A fire set on purpose by the owner;
- A well that goes dry;
- Carpet beetle damage;
- China plates broken by a pet;
- Damages to property caused by excavations on adjoining property;
- Damages for personal injuries or property damage to others caused by your negligence;
- Damage to a crop caused by plant diseases, insects, or fungi;
- Damage from rust or corroding of the understructure of a house;
- Damage to property from a government construction project;
- Damages to property from drought in an area where a dry spell is normal and usual;
- Dry rot;
- Engine damage caused by failing to use anti-freeze;
- Expenses to move to, and rent for, temporary quarters;
- Eye glasses or a watch dropped on the ground;
- Injuries from tripping over a wire;
- Legal expenses for defending a suit regarding your negligent operation of your personal automobile;
- Legal expenses to recover personal property wrongfully seized by the police;
- Loss of an ill lawyers earnings;
- Loss of a valuable dog that strayed;
- Loss of a private liquor stock in an improper police seizure;
- Loss of a contingent interest in property because of the unexpected death of a child;
- Loss of jointly held property taken by the other joint tenant;
- Loss of luggage aboard a ship;
- Loss of personal property while in storage or transit;
- Losses from natural phenomena;
- Loss of trees from diseases;
- Money paid to a public library for a book you damaged;
- Moth damage;
- Sudden drop in the value of securities;
- Termite damage;
- Temporary fluctuations in value
People who suffer a casualty or theft loss may be able to deduct on their tax return the casualty or theft loss when they itemize tax deductions on their tax return. The amount of total casualty or theft losses that exceed 10% of adjusted gross income (AGI), after subtracting the $100 floor for each occurrence, maybe deducted on your tax return. It's basically a three step process:
- Calculate the decrease in the property's fair market value that is the difference between the property's value immediately before and immediately after the casualty loss. Compare this with the adjusted basis of the property. Use the lower of these two amounts;
- Reduce this amount by any insurance or other reimbursements you receive or expect to receive;
- Reduce this figure twice, first by $100, and then by 10% of adjusted gross income. What's left, if anything is tax deductible as a casualty or theft loss on your tax return.
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