DON'T GET SOAKED ON TAX DEDUCTIONS.
Homeowners who sustained property damage from pounding rains this winter might be able to look forward to a tax break.
But you'll need a big loss to take advantage of it.
Current rules allow a deduction for unreimbursed casualty and theft losses - including gaps in insurance coverage - for filers who itemize deductions.
And this is a deduction that is often overlooked, said Pete Moraga, spokesman for the Los Angeles-based Insurance Information Network.
``One of the things that's important to understand is that standard homeowners policies don't cover landslides or mudslides and things caused by the rains and obviously there are unreimbursed losses,'' he said.
So are other types of natural calamities.
The insurance group also recommends that property owners consult with a tax-preparation expert before taking the deduction.
Here's the formula.
Generally, a loss can be deducted if it exceeds 10 percent of your adjusted gross income, less $100.
For example, if the adjusted gross income is $100,000 then 10 percent of that would be $10,000. Factor out the $100 and you're left with $9,900.
Any amount above $9,900 is deductible, Moraga said.
Documentation is important, so save all receipts, insurance statements, police reports and other documentation and take them to your tax preparer.
Cindy Hockenberry, tax information analyst at the National Association of Tax Professionals, notes that since the deduction covers a loss some research work will need to be done.
Figuring this out can be tricky, since things like carpets, flooring and walls don't have price tags on them when you buy a home.
So homeowners might have to bring in an appraiser to get an idea of what percentage of the property has been damaged compared with the home's purchase price. The figure you come up with has to be reasonable, too, she said.
Not only is it a good idea to keep the receipts from big-ticket purchases, such as appliances and furniture, but take photos of valuables you've got to protect them.
``Keep the receipts and photos off-site so you have a record of what was in the home that's no longer there,'' she said.
It's impossible to say how much of a tax savings will result if you have a valid deduction but if you know what tax bracket you're in a guesstimate is possible. Say you are in the 15 percent bracket; your bill is reduced by 15 cents for every unreimbursed dollar you lost.
The insurance institute also recommends visiting the ``Non-Business Casualty and Theft Losses'' section of the Internal Revenue Service Web site at www.irs.gov and the California Franchise Tax Bureau Web site at www.ftb.ca.gov.
Those sites offer federal and state guidelines for the deduction.
And since winter's storms resulted in Southern California being declared a disaster area, filers may also be able to take advantage of extended deadlines and amended return procedures.
The Federal Emergency Management Agency disaster declaration for Los Angeles, Ventura, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Kern counties covers the time between Dec. 27, 2004, and Jan. 11.
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 can opt to include the unreimbursed loss deductions on their 2005 filing.
If you do file for the deduction, the institute also suggests writing ``CA STORMS'' in bold red letters across the top of federal tax forms.
Gregory J. Wilcox, (818) 713-3743
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Apr 3, 2005|
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