Reconstructing Records After a Natural Disaster or Casualty Loss; IRS Provides Tips to Help Taxpayers
Michael Lodge - listen to my PodCast
Lodge & Co. www.lodge-co.com
Offices: Burbank, CA & Greenville, SC
For those of you in California who have been hit by fires, and Texas and Florida with other disasters, you need to follow this as much as possible in recreating your records to claim the casualty loss on your 2017 tax returns.
Reconstructing records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. After a disaster, taxpayers might need certain records to prove their loss. The more accurately the loss is estimated, the more loan and grant money there may be available.
For taxpayers who have lost some or all of their records during a disaster, there are some simple steps to take that can help. The following information includes steps to take after a disaster so taxpayers can reconstruct their records and prove loss of personal-use and business property.
Reconstructing RecordsTax Records
Personal Residence and Real Property
Real property, also called real estate, is land as well as generally anything built on, growing on, or attached to land.
There are several resources that can help determine the current fair market value of most cars on the road. These resources are all available online and at most libraries:
Kelley’s Blue Book
Additionally, call the dealer where the car was purchased and ask for a copy of the contract. If this is not available, give the dealer all the facts and details, and ask for a comparable price figure. If making payments on the car, check with the lien holder.
It can be difficult to reconstruct records showing the fair market value of some types of personal property. Here are some things to consider when cataloguing lost items and their values:
If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted:
Casualty and Disaster Tax Losses
A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. If damage is to personal, income‐producing or business property, taxpayers may be able to claim a casualty loss deduction on their tax return.
Taxpayers generally must deduct a casualty loss in the year it occurred. However, if the property was damaged as a result of a federally-declared disaster, taxpayers can choose to deduct that loss on their return for the tax year immediately preceding the year in which the disaster happened. A federally-declared disaster is a disaster that took place in an area declared by the President to be eligible for federal assistance. Taxpayers can amend a tax return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Taxpayers may need to reconstruct their records to prove a loss and the amount of the loss. To compute loss, determine the following figures:
Taxpayers may deduct the smaller of these two amounts, minus insurance or other reimbursement. Additionally, certain deduction limits apply. See Publication 547, Casualties, Disasters and Thefts, for details on these limits and Publication 551, Basis of Assets, for additional information on basis.
If the casualty loss deduction causes a taxpayer’s deductions for the year to be more than their income for the year, there may be a net operating loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.
Determining the Decrease in Fair Market Value
Fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV used to figure the amount of a casualty loss is the difference between the property's fair market value immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without a competent appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in fair market value.
Generally, the cost of cleaning up or making repairs if the repairs are:
For more information on losses, see these IRS publications: