How to Report a Casualty or Theft Loss on Schedule A (Itemized Deductions) of Your Income Tax Forms
For tax purposes, casualty or theft losses are losses you suffer because of damage to or the loss of personal (non-business) property such as your home or automobile. If you have such a loss, you may be able to use that to reduce your US income tax liability.
These damages are reported on IRS Form 4684, Casualties and Thefts, and are carried over to line 20 of your Schedule A (itemized deductions). A casualty or theft loss must be reported for the tax year it occurs in, even if you do not repair or replace the items damaged until later. (A one-year extension is granted to losses caused by a federally-declared disaster.)There are several short steps to figuring out the amount of your casualty or theft loss deduction. 1.
Determine whether a property loss you have suffered is a casualty or theft as the tax law defines them: damage, destruction or loss of property resulting from a specific event that is sudden, unexpected, or unusual. Examples of a casualty include: car accident, fire, explosion, earthquake, flood, severe weather, vandalism, shipwreck, or sonic booms. Examples of theft include: burglary, robbery, kidnapping, embezzlement, extortion, and blackmail. 2.
You must be able to prove the casualty loss. Keep records of key facts, including: type of casualty or theft (see above), the date of loss, direct relationship between the occurrence and the loss, proof of your ownership of the damaged property, and documentation of reimbursement, either actual or expected. A police report is always a good record to establish and keep.3.
Determine the amount or value of your loss. The amount is the smaller of the following (minus any reimbursements you have or expect to receive): the adjusted basis of the property (usually the cost) of the property before the loss (if the
loss was total) OR the decrease in the property's fair market value(FMV) as a result of the loss. A decrease in the amount of the FMV can be determined by a competent independent appraiser.4.
The amount of the loss claimed must be reduced by any reimbursement you have received, whether that from by an insurance payment, an employer's emergency disaster fund, or any of the numerous relief agencies available (you may actually have to report a gain if you came out ahead in your insurance claim).
Note to remember: If you have multiple items damaged or lost as the result of a single occurrence (see point number 1), they are considered one event
Once you have determined the amount of your loss, two limits must be applied: the$100 rule
and the 10% rule
. $100 Rule
: Each loss (or event) must be reduced by $100. NOT each item, but each event. So if you sustained multiple losses in the same event (i.e. a single tornado hits both your house and car), only one $100 reduction applies. If you have multiple losses caused by separate events, then a Form 4684 is needed for each event.
THEN, add up all of your casualty or theft losses for the entire tax year (assuming that you have more than one), and reduce the total by 10% of your adjusted gross income(found on line 37 or 38 of your form 1040)
Once you have figured whether or not you have a deduction for the casualty or theft loss of your personal property, as well as the amount, on Form 4684, they are entered on line 20 of Schedule A (itemized deductions)
.This article is approved for informational purposes only. It is not intended to take the place of competent local legal counsel, or your income tax advisor.