An often-overlooked deduction may help turn a major property-casualty loss into a tax time gain, according the Insurance Information Network of California.
The association is reminding consumers that a deduction for unreimbursed casualty and theft losses allows uninsured property losses can be included among itemized deductions.
To qualify for the deduction, financial losses usually need to be substantial, the association said in a statement. Any significant catastrophe deductible or gap in insurance coverage — from fire, flooding or earthquake, for example — may qualify for tax deductions. Insured losses may range from wildfire damage to losses from theft, vandalism or robbery. Homeowners with losses from the 2008 California wildfires may also qualify for additional benefits under new federal legislation.
The National Disaster Relief Act of 2008, allows all taxpayers, not just those who itemize, to claim a deduction for catastrophe losses regardless of their income level. The legislation eliminated the requirement that taxpayers qualify for the deduction only if the disaster loss exceeded 10 percent of their adjusted gross income, less $100. If a 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 feel they qualify for these deductions should collect all receipts, insurance statements, any available police reports or other documentation, and present it to a tax preparer. Customers 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 http://www.ftb.ca.gov to learn more about both federal and state guidelines for this deduction.
In regions of federally-declared disasters, such as California wildfire areas, the deduction can either be filed for the year in which the disaster occurred or for the year immediately preceding the year the disaster occurred.
The American Institute of Certified Public Accountants and the National Endowment for Financial Freedom have written and produced “Disaster Recovery: A Guide to Financial Issues” to help people affected by disaster minimize the financial impact of a catastrophic event. Additional information is also available from the IINC Web site at www.iinc.org.
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