How to Deduct Casualty Losses – July 2012

The Shaw Atlas

July 2012

 

Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.

 

Newsletter contents:

 

We Asked and You Delivered

Shaw & Associates Participates in Senior Law Day

Young Professional of the Week

How to Deduct Casualty Losses

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We Asked and You Delivered

 

The High Park Firefighter collection was a remarkable success. Shaw & Associates was able to collect a significant amount of supplies to help the cause. We cannot express how proud we are to live a community that continually cares about each other. A huge thank you goes out to all of those who donated. Reminder: All donations are tax deductible!

 

Shaw & Associates Participates in Senior Law Day
Shaw & Associates is excited to participate in this year’s Larimer County Senior Law Day. We are passionate about helping everyone but especially seniors planning for their future and how to avoid the common pitfalls of financial woes.Senior Law Day is an annual event presented by the Elder Care Network where seniors and families are able to receive legal and financial advice by local professionals. There are over 12 presentation to help you plan for your future. Registration is required. Make sure to stop by our booth and visit with Dave Plan and Kevin Shaw.
Young Professional of the Week
Shaw & Associates’ Financial Advisor Dave Palm received the Colorado Young Professional of the Week on July 7, 2012. Please check out the article at Coloradoan.com. Every week the Coloradoan recognizes an under 40 professional who stands out in the community. Congratulations Dave!
How to Deduct Casualty Losses
Kevin Shaw, CPA, PFS, CEO

In light of the recent High Park and Waldo Canyon fires that have devastated many homes and properties in Larimer County and Colorado Springs, I thought it would be an appropriate time to review the IRS rules relating to Casualty Losses and their potential deductibility on a tax return.

A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. A casualty does not include normal wear and tear. Generally you may deduct casualty losses relating to your home, household items and vehicles on your Federal income tax return. You may not deduct casualty losses covered by insurance unless you file a timely claim for reimbursement, and you must reduce the loss by the amount of any reimbursement.

If your property is a personal property, such as your primary residence or a vacation home, or is not completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of your property as a result of the casualty.

The adjusted basis of your property is usually the original purchase price of your home plus any major improvements. The adjusted basis of household items and vehicles is generally the original cost of the item. The adjusted basis must be reduced for depreciation in the event you claimed your primary residence as a home office or rented a portion of the home.

Individuals are required to claim their casualty losses as an itemized deduction on Form 1040, Schedule A. Since the calculation is somewhat complex, I will not detail this here. However, it is important to know that there are some limitations on the amounts that can be deducted that need to be taken into consideration.

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year.

These rules can sometimes be confusing. If you have incurred a casualty loss, please do not hesitate to contact us to assist you in this matter.

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