When it comes to real and personal property losses, insurance doesn’t always cover the loss. The IRS and tax rules and regulations provide some relief if you qualify under the casualty losses.
According to the IRS Publication 547, casualty losses is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.
1. A sudden event is one that is swift, not gradual or progressive.
2. An unexpected event is one that is ordinarily, unanticipated, and unintended.
3. An unusual event is one that isn’t a day-to-day occurrence and that isn’t typical of the activity in which you were engaged.
Examples of casualty losses are car accidents, earthquakes, fires, floods, government ordered demolition or relocation of a home that is unsafe to use because of a disaster, mine cave-ins.shipwrecks, sonic booms, storms (including hurricanes and tornadoes), terrorist attacks, vandalism, and volcanic eruptions.
Examples of non-casualty losses, according to the IRS Publication 547 are accidentally breaking articles such as glassware or china under normal conditions, a family pet, a fire if you willfully set it, or pay someone else to set it, a car accident if your willful negligence or willful act caused it (the same is true if the willful act or willful negligence of someone acting for you caused the accident, and progressive deterioration.
What you will need to know to prepare the Casualty Loss IRS Form 4684 is:
Cost or Adjusted Basis of property
Insurance or other reimbursements
Fair Market Value of the property before the loss
Fair Market Value of the property after the loss
10% of your AGI (adjusted gross income) for calculation purposes
If you have a gain on the insurance on Form 4684 after applying the insurance or other reimbursements to your casualty loss on your primary residence, you may be able to include the gain up to $250,000 (single) or $500,000 (married filing jointly) if meet the two out of the previous five years requirement for living in the home as you primary residence.
As always, contact your taxpreparer or a tax professional (CPA, Tax Attorney) for tax assistance if you have tax questions or need tax assistance.
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