How to Deduct House Losses on a Federal Income Tax
The Internal Revenue Service allows people who have suffered losses on their house, whether from natural disasters, vandalism or theft, to claim a tax deduction for part of their losses. To claim the tax break, you must itemize your deductions using Schedule A, which means forgoing the standard deduction, and determine your deduction using Form 4684, section A. If you have losses resulting from a federally declared disaster, you can claim that loss on Schedule L without itemizing your deductions.
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Instructions
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File a timely insurance claim if you have homeowners insurance. The IRS requires that you file a claim and reduce your losses by the amount of insurance reimbursement you receive.
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Complete lines 2 through 9 of Form 4684, section A, to determine your total loss. The loss will be the smaller of your cost basis for the property or the decrease in the fair market value. The cost basis for your house is generally how much you paid plus any money you put into improving the home.
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3
Subtract an additional $500 from the amount of your loss. If your loss is less than $500, you cannot claim a deduction.
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4
Account for any insurance reimbursement from your losses by entering the total amount of reimbursement on line 14. Subtract this amount from line 13, the totals of your losses, and write the result on line 16.
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5
Determine whether your home losses are from disasters as declared by the president and write this amount on line 17. The amount of your damages resulting from the disasters is not subject to having 10 percent of your adjusted gross income subtracted. If you do not plan to itemize your deductions, this amount can be claimed by writing it on line 6 of Schedule L, but you will not be able to claim any nondisaster losses.
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Multiply your adjusted gross income by 0.1 and subtract the result from your losses not from a disaster, writing the result on line 21. For example, if your losses totaled $20,000 and your adjusted gross income was $40,000, you would subtract $4,000 to find your deduction value equals $16,000.
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Add the amounts on line 17 and 21 to determine your total deduction. Write the result on line 21 of Form 4684 and line 20 of Schedule A to claim the deduction for your home losses.
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