How to Reduce AGI With Safe Harbor Rules

If you incurred casualty losses due to the effects of hurricanes, you may have several optional methods of determining your casualty loss deductions. The IRS issued Revenue Procedure 2006-32 which provides guidance on the safe harbor methods that you can use to compute your loss deductions.

Difficulty: Moderately Easy

Instructions

1. Review the safe harbor methods provided in Revenue Procedure 2006-32 that you must use to determine casualty losses relating to personal residence or other property.

2. Use one of the three safe harbor methods that pertains to individuals who have incurred decreases in fair market value of personal use residential property. These optional methods provide guidance to persons who have lost their records or otherwise find it very difficult to determine proper values.

3. Refer to the fourth safe harbor method discussed in the revenue procedure which you may use to arrive at the fair market value of certain personal belongings. The allowable casualty loss is based on the fair market values immediately before the hurricane caused the destruction.

4. Determine your casualty losses either by one of the optional safe harbor methods described in Revenue Procedure 2006-32, or alternatively by the methods in IRS Pub 547. Deduct personal casualty losses, net of applicable insurance recoveries and limitations, as an itemized deduction.

Resources

• IRS Revenue Procedure 2006-32