You never know when problems can occur, and this year people have experienced their fair share of unexpected problems. This summer alone people across the country are dealing with blazing wildfires, destructive storms with dangerous winds, and other natural disasters. Some people are lucky and come out of the damage relatively unscathed, but others aren’t as fortunate. Some people have had significant damage done to their property, and they’re trying to find a way to rebuild. There are also some people that aren’t dealing with disasters caused by nature, they’re dealing with problems caused by other people. Theft of expensive objects, damage done by vandals, blackmail, and other problems happen to people every day.
Many people don’t know what to do when disaster occurs. People with insurance may be able to get some help from their policy, but some policies don’t have enough coverage to completely compensate the policy holder for their loss. Luckily for tax paying American citizens, Uncle Sam has measures in place to help people in their hour of need. Financial losses incurred because of casualty, disaster, and theft losses may be tax-deductible. Tax payers can report casualty and theft can be reported on Form 4684 and Form 1040 Schedule A.
A casualty is defined as the loss, significant damage, or destruction of property because of a sudden event. In order to claim property as a casualty cost, the event that caused it must be easily identifiable and unexpected. Natural disasters like floods, earthquakes, storms, and wildfires fit the criteria, but Mother Nature doesn’t have to be the only cause of your loss. Losses due to car accidents, terrorist attacks, and vandalism can all be claimed as a casualty loss.
The IRS’ definition of theft isn’t too different from what law enforcement officials view as theft of property. The IRS defines theft as “the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent.” According to the IRS embezzlement, robbery, blackmail, burglary, extortion, larceny, and even kidnapping for ransom all full under the umbrella of theft losses.
Losses You Can’t Claim
The government offers IRS tax help to taxpayers that have experienced hardship, but there are some situations where you won’t be able to claim the property and finances you lost over the year. Property that was misplaced cannot be claimed as a loss, nor can property that was accidentally broken. Tax payers may also not claim any property that has gone through progressive deterioration. In order to be tax-deductible the damage must be cause by a sudden and unexpected event. As an example, if your home was significantly damaged in a storm you would be able to claim that. If your home was damaged because of termite infestation or mold over a period of time, you would not be allowed to claim that.
*Not a solicitation for legal services*