Casualty Losses

6/2/2014 - By John Mascaro, CPA

The recent torrential rains and flooding conditions in the Pensacola area present us with the need to remind folks about the tax rules surrounding casualty losses. If you've lost property or suffered damages due to the recent flooding, getting some tax relief may serve as at least a minor consolation.

If your home or other property is damaged as a result of a fire, earthquake, flood, hurricane, vandalism or similar event, you may be able to take a deduction for the loss. To be deductible as a casualty loss, the property must be damaged, lost or destroyed by a sudden, unexpected or unusual event. Therefore, using the term "tax planning" when referring to a casualty loss may seem inappropriate.

However, if you have suffered a loss, there are several tax issues that you need to consider, such as determining the year in which to take the loss, the benefit of married individuals filing separately, valuation of the property, limitations and adjustments to the loss, and finally the tax consequences of any insurance reimbursements or recoveries.

A casualty loss is not allowed when the loss is gradual, such as insect damage to trees or water damage from a leaky roof. Therefore, damage or destruction resulting from progressive deterioration of property, such as beachfront erosion, would not qualify as a casualty loss. Loss of property through theft is deductible, but merely misplacing property is not.

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CASUALTY LOSSES

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