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Deducting Losses on Your Taxes

February 19, 2012 | Comments: 0 | Views: 134

This article is going to go over an itemized deduction category that is commonly missed on tax returns, casualty and theft losses. If you have property that is destroyed or stolen you can deduct a portion of the loss. Most people who are in the middle of a disaster don't always think about the fact that it might be tax deductible. As with most deductions there are some limits. The loss you can deduct will be the amount you lost after any reimbursement from insurance. The loss has to be over $100, and it is limited to over 10% of your adjusted gross income.

There are two types of losses you can deduct. In this article we are only going to cover half of the deduction, casualty loss. This is a loss of property from fire, storm, shipwreck, or other casualty. A casualty caused by things such as drywall rot and black mold are also allowed. Usually a casualty loss is covered by insurance, so by the time you get reimbursed, your deductible is often not more than the 10% of your income limitation. But, if you have a high deductible or no insurance you may qualify for the deduction.

Let me give you an example of this type of loss using a flood that occurred few years ago in St. George, UT. The St. George River runs through St. George. Most people wouldn't even call it a river because for over 90 years it was not much more than a trickle. Because there was not much water in the river for so long, people began to build houses closer and closer to the river. Also, insurance and mortgage companies did not require flood insurance because they never thought it would be a problem. Several years ago St. George got a tremendous amount of rain, way more than normal and more than they had received in years. This caused the St. George River to dramatically increase in volume. Hundreds of people had to evacuate their homes. Many homes received thousands of dollars in flood damage, and tragically, some houses actually completely washed away. Because no one carried flood insurance, none of the damages were covered. Eventually, there was some government assistance. But the out of pocket expense that these home owners experienced would qualify them for the casualty loss deduction.

When you experience a casualty loss you can take the deduction the year you experience the loss or you can actually go back and amend the previous year's tax return, take the deduction, and get a refund. For example, if you experienced a flood loss in 2010 you could claim the casualty loss on the 2010 tax return or you can amend your 2009 return, take the loss and get a refund for that year.

As we said earlier, there is also a theft loss you can claim as well. Check out our MP3 #8, "Itemized Deductions and Gambling Winnings" on to learn more about the property loss deductions.

Source: EzineArticles
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