How to Get Tax Deductions for Casualty Losses

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Lots of people overlook casualty deductions with the IRS. Many do so out of fear of being audited should they take their legal deductions. In turn, many others simply do not know how to get tax deductions for casualty losses. It is actually rather easy. Follow these simple steps and you will be able to get those casualty loss tax deductions.

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Instructions

Difficulty: Challenging

Things You’ll Need:

IRS Form 4684
IRS Form schedule A
Personal time
Receipts or proof of losses

Step1

Determine if your losses qualify. The IRS has strict standards on what can and can not be considered a loss. The IRS states that, “Damage, destruction or loss of property resulting from a sudden, unexpected or unusual event; the losses can result from natural or man-made disasters.” For more information on what you can deduct on losses visit the supplied URL link below.

Step2

Determine your total losses. In order to claim a deduction you must determine your losses first. These are the IRS rules: take your total loss and minus $100 from it as well as any insurance money that was recuperated. The remainder must be at least 10% of your AGI (Adjusted Gross Income) or you can not deduct that loss.

Step3

Now determine what portion of the loss you can write off. Let’s say that you had a loss of $10,000, and your AGI was $80,000. You minus the $100 from the $10,000 automatically giving you $9,900; then you take ten percent of your AGI and subtract that. In this case it would be $8,000. Finally you also minus any insurance payouts, and let us pretend that you got back $1,000 from the insurance company.

Step4

Do the math and reach your final deduction amount. So this is how your math would read: loss of $10,000 minus ten percent of AGI ($8,000) equals $2,000. Now subtract the mandatory $100 as well as the insurance payout of $1,000 and you have the true loss deduction, which in this case would be $900.

Step5

Fill out the proper forms and attach them to your return. You will need the IRS Form 4684 and IRS Form schedule A to fill out your casualty losses. Make sure that you attach these forms to your 1040 before mailing it in to the IRS.

Tips & Warnings

Use free online tax preparation software for easy accounting of your losses and any other deductions.
Make sure that you have receipts and proof of your loss should you get audited.