An often-overlooked deduction may help turn a major property loss into a sizeable gain at tax time, according to the Insurance Information Network of California (IINC).
The deduction for unreimbursed casualty and theft losses allows uninsured property damage to be included among itemized deductions.
To qualify for the deduction, financial losses usually need to be substantial. Any significant catastrophe deductible or gap in insurance coverage — from flooding, fire or earthquake, for example — may qualify for tax deductions. Insured losses may range from storm damage to burglary.
Generally, a loss can be deducted to the extent that it exceeds 10 percent of a homeowner’s adjusted gross income, less $100. If the property is used in a trade or a business, slightly different rules may apply, so it’s important to seek assistance from a qualified tax preparer.
Homeowners who think they may qualify for these deductions should collect all receipts, insurance statements, police reports and other documentation, and present it to a tax preparer. Residents can also review the “Non-Business Casualty and Theft Losses” section of the Internal Revenue Service Web site at www.irs.gov and consult the Franchise Tax Bureau Web site at www.ftb.ca.gov to learn more about both federal and state guidelines for this deduction.
In regions of federally declared disasters, such as the recent Southern California storms, tax filers may also be able to take advantage of extended deadlines and amended return procedures.
The Federal Emergency Management Agency recently extended its disaster declaration from Los Angeles and Ventura counties to include Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Kern counties for damage sustained between Dec. 27, 2004 and Jan. 11, 2005.
Storm victims seeking unreimbursed loss deductions can file for the 2004 tax year to qualify for immediate relief, even if the damage occurred in 2005, or they may opt to include the unreimbursed loss deductions on their 2005 filing.
Storm victims filing unreimbursed loss deductions should write “CA STORMS” in bold red letters across the top of their federal tax forms and consult tax specialists to confirm procedures, filings deadlines and individual financial benefits.
The American Institute of Certified Public Accountants, the American Red Cross and the National Endowment for Financial Education have written and produced consumer guides to help people affected by disaster minimize the financial impact of a catastrophic event. These guides contain important tax information and can be accessed via the Internet at www.redcross.org.
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