COMMERCE CLEARING HOUSE: WHEN DISASTER STRIKES: GET THE TAX DEDUCTIONS YOU DESERVE!
RIVERWOODS, Ill., Aug. 17 /PRNewswire/ -- Americans who suffer property losses due to natural disasters such as floods, hurricanes and tornadoes are entitled to federal tax breaks, says tax and business law publisher Commerce Clearing House (CCH). "A catastrophic loss of property can be a devastating experience. Often, it's hard to think beyond just picking up the pieces following a disastrous event such as the flood of '93 which inundated hundreds of Midwest communities," said Martin Bush, managing editor, Federal Tax Group for CCH. However, CCH offers a handy disaster checklist designed to walk a taxpayer through the information the Internal Revenue Service requires when claiming a deduction following a major loss. WHAT CAN I DEDUCT? The IRS allows you to take certain deductions on your federal income tax following a "casualty," a loss of property resulting from a sudden, unexpected or unusual event. Basically, a taxpayer can deduct the new amount of actual property loss resulting from damage to, or destruction of property. In the case of non-business property, the deduction is limited to losses arising from fire, storm, shipwreck or other casualty, such as tornadoes, hurricanes, earthquakes and abnormal flooding. WHAT INFORMATION MUST I PROVIDE? To qualify for a casualty loss deduction, you need to prove to the IRS that a loss occurred, and that the loss was caused by a casualty. To support your claim, you'll need to provide: --Proof of the nature of the casualty (fire? storm? etc.), when it occurred, and that the loss was a direct result of the casualty. --If the property is depreciable (such as a car), depreciation allowed or allowable. --Proof you own the damaged property, or are legally responsible for it. --The fair market value of non-business property just before and after the loss. --A description of the damaged property and its location. --Salvage value of the property. --The cost or other adjusted basis of the property. --Amount of insurance or other compensation you receive or expect to receive for property damage. This includes the value of repairs, clean-up, and disaster relief without cost by agencies or others. You can also use the cost of repairs to the damaged property as evidence of the loss of value if you can prove that: --The repairs are necessary to restore the property to its pre-casualty condition. --The repairs do not cover more than the damage by the casualty. --The amount spent for such repairs is not excessive. (Get estimates from several reputable companies.) --The repairs don't make the value of the property greater than it was before the loss occurred. Also, remember to consider damages to the property that are an indirect result of the casualty. For example, destruction of doors, windows, plants and shrubbery. WHAT'S NOT DEDUCTIBLE? Note these incidental expenses relating to a casualty are not part of your "casualty" losses: --Treatment of personal injury --Clean up costs --Temporary housing --Car rental HOW DO YOU DETERMINE THE VALUE OF YOUR PROPERTY? Valuation of your property is of the utmost importance when determining the amount of loss sustained in a casualty. So be prepared to provide your tax preparer with evidence showing the value of your property's pre-casualty value. Acceptable evidence includes: --Canceled checks, vouchers, receipts, purchase contracts, deeds. --Losses claimed for the destruction of portraits, heirlooms, keepsakes, etc. must be related to their market value, not their replacement value, nor sentimental value. --If your records have been destroyed, get an appraiser's opinion on the value of the property. IN WHAT TAX YEAR SHOULD THE LOSS BE TAKEN? Usually, casualty losses are deductible in the year they occur, regardless of when the damage is repaired or the property is restored. However, if you have an action for reimbursement against another party, or you have an insurance claim, the year when you can claim the deduction may be postponed. WHAT IF YOU ARE IN AN OFFICIAL DISASTER AREA? Special rules come into play if your losses occur in an area determined by the president of the United States to be a "disaster area." In this case, you can elect your losses in the year immediately before the tax year when the disaster occurs. You can also claim casualty losses for personal residences rendered unsafe by reason of certain disasters. To do this, you must meet all these criteria: --The residence must be in an area designated a "disaster area" by the president. --The residence must have been rendered unsafe as a residence because of the disaster; and --You're ordered to demolish or relocate the residence by the state or local government 120 days after the "disaster area" has been declared officially. For more information about your taxes during times of disaster, consult your local tax preparer. -0- 8/17/93 /CONTACT: Mort J. Sullivan of CCH, 312-463-0074, ext. 2264.
CO: Commerce Clearing House ST: Illinois IN: PUB SU:
MP -- NY056 -- 3552 08/17/93 12:27 EDT
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|Date:||Aug 17, 1993|
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