Uninsured Loss Might Be a Tax Deduction
No insurance? You may still be able to recover some of your loss.
Posted August 27, 2009
Flood losses have reached record amounts this year, especially in the mid-west, and the majority of homeowners do not have flood insurance. Others throughout the United States have experienced tornadoes, fires, vandalism, hurricanes and theft. Many found that once they filed their insurance claim, they were underinsured. Unfortunately, even more people were uninsured, and fear a total loss and no way to recover even a dollar.
However, all is not lost! You may be able to claim a tax deduction on your federal tax return. Though you won't recover the full amount, you might be able to receive a deduction for at least some of your loss. There are hoops to jump through, and verification will be required.
Susie Keaton, CPA and owner of Keaton CPA Group, states that you need to support the deduction through a professional valuation of your property before and after the loss or damage. A business or home inventory will strengthen your claim for the loss.
A thorough, professional inventory will include a written report and photographs to support the list of items. This documentation will help you remember and prove ownership. Your tax deduction will most likely be larger than if you didn't have an inventory since you won't rely solely on memory.
How much can you expect to be able to claim on your taxes? As Keaton explains, calculate your "adjusted basis" on the property this is your original cost and additional capital improvements for which you have paid during your ownership, less depreciation deductions and any previous casualty write-offs that you have claimed.
If you have any insurance coverage, subtract anything you have received or expect to receive from your insurance company. Also subtract $100 from each theft or casualty loss, as the IRS disallows write-offs for the first $100.
Lastly, subtract 10% of your AGI (adjusted gross income) for the same year as your loss to reach your final tax deduction.
The process is tricky, but it is good to know that you may not experience a total loss. Many exceptions and complications may apply, and good record keeping will benefit you, because the United States Tax Court emphasizes that it will "bear heavily" against taxpayers basing their loss estimates on personal recollection.
Once you've completed your taxes, use this experience as encouragement to compile your personal property inventory before you need the information again. If you don't like detail work, or there is another reason you won't do it yourself, seek the assistance of a professional service provider. Before hiring one, though, verify they are bonded and insured. In addition to the inventory service, the provider should also include secure back-up of your records and a process in place to update your records annually. Without the updates, the report will be outdated very quickly.
For more information on the tax deductibility of uninsured personal property, contact your CPA or visit www.irs.gov and download publications 527 and 2194.
Cindy Hartman is President of Hartman Inventory LLC, a woman-owned business that provides business and home inventory services for estate planning, estate settlement, financial planning, disaster recovery and more. Her website is HartmanInventory.com.