Tax Question - Casualty Loss

Storm damage to a home in mid Year 1. Repairs begin immediately but extend into Year 2. Can I charge all in year 2 rather than assigning each year the actual cost spent?

According to my TaxCut software instructions: "Although you may claim a casualty loss in the year you can reasonably estimate your loss-probably the year the bank goes under-you can't claim a bad-debt deduction until the actual amount of the loss is determined, which may well be in a later year."

Although the example referred to a non-insured bank going south, I assume a loss to personal property can be made to fit the bill. The assumption is... the estimate of the loss was incomplete until all the work was finished. Since it involved excavation and replanting, there was no way of knowing for certain it the landscaping would be finished until it started to grow. Thus... had to finish grading and planting the following Spring.

Will it fly with the IRS? It's to my advantage to claim all in Year 2 rather than 1 even though the bulk of the expense was incurred in Year 1. The complete project spanned took one year... Summer to Spring.

Reply to
John Gregory
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That TaxCut example you quoted, I believe, refers to a non-business bad-debt deduction which would go on a Schedule D. This is not the same thing you are referring to in terms of storm damage to property. Casualty losses caused by storm damage have little if any to do with the money spent to replace the loss. A casualty loss of this type depends on the value of the property before the casualty minus value of the property right after the casualty. Then you subtract insurance reimbursement and $100. After that, you must then subtract 10% of your adjusted gross income. You must get a Form 4684 in order to claim that loss.

Wayne Brasch, CPA, M. S. Taxation

Reply to
Wayne Brasch

That I understand. I listed the "value of the property" as being equal to the total amount of the repair (....'cause that's what it cost to repair it. If I sold the home "as is", the price would have to be discounted that amount.). That's not the question though. In order to get the "value" of that damage using this logic, I had to estimate the cost of repair. That took 12 months over two tax periods. Thus, I want report the casualty on the tax return as being an expense for year 2 rather than one.

Will it fly?

Reply to
John Gregory

I don't think so.

Wayne Brasch, CPA, M. S. Taxation

Reply to
Wayne Brasch

Reason being... A) that these expenses have to be treated on a cash basis, thus, they must be applied to the year in which they were paid? Or... B) there's something faulty in my claiming that the value of the casualty is equal to the cost of repair?

Reply to
John Gregory

Normally a casualty loss is taken in the year it happened despite the year the property is restored. The cost of repairs, usually in the eyes of IRS anyway, has little if anything thing to do with determining the amount of the loss. It is in their eyes, according to the tax law, fair market value before and fair market value immediately after the casualty that determines that amount. Read through the Form 4684 and see what it calls for and what it does with the information you give it. Was an insurance claim filed? Was any insurance reimbursement received? Answers to these question will also impact the final result.

Wayne Brasch, CPA, M. S. Taxation

Reply to
Wayne Brasch

I've gone through the interview for form 4684. That's when I began thinking of the time frame. There was no insurance reimbursement except for carpeting which I chose to exclude entirely because I waited two years to file that claim with the company. I don't think I'm obligated to list the reimbursing if I'm not recording the claim. The exterior labor (track hoe, backhoe, trucking, gravel, drainage material, seed, topsoil, etc...) constitutes the bulk of the claim. Ninety falls in year 1 (the year I don't need it) and 10% in year 2 (the year I'd prefer to make the claim).

Reply to
John Gregory

Something you misunderstand is that full value is not necessarily restored with repair; therefore, cost of repairs does not necessarily equal decline in value.

More importantly, however, is that the IRS is very clear that the loss can be deducted >I've gone through the interview for form 4684. That's when I began thinking

Reply to
Beverly

Any insurance reimbursement must be included to reduce the loss. If you had not filed any insurance claim at all, IRS would probably just refuse to allow you to use the casualty loss as a deduction. What you are experiencing with this situation and trying to use TaxCut to interview yourself to prepare your return shows that you should consult some competent tax professional in your area to better show you how or if you can take advantage of the casualty loss deduction. This person need not be a CPA or EA, but have some competency in tax preparation. They can save you more trouble in the future. Ask them up front to tell you how much they would prepare your return for you.

Wayne Brasch, CPA, M. S. Taxation

Reply to
Wayne Brasch

Reply to
John Gregory

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