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Writing off a totaled auto
Dear Tax Talk:
If I was involved in an auto accident with a free-and-clear title
and received $4,000 less than the Blue Book value of the vehicle.
Can I write off this loss?
Michael
Dear Michael:
It seems like I should ask you if you would get in an accident if
you could get a write-off?
A loss that is not fully compensated by insurance
is a casualty
loss. Casualty losses get reported on Form
4864.
A casualty loss involving personal-use property is
subject to deduction limitations. You measure your loss by reducing
the lower of either your original cost or the value at the time
of the accident by the amount of insurance proceeds plus any remaining
value to the damaged property. If the car were totaled, then there
would be no remaining value to you. If the Blue Book value is $4,000
more than your insurance recovery, then you would have a $4,000
loss.
The loss, however, is subject to reductions. First,
you reduce your loss by $100, then you reduce it by 10 percent of
your adjusted gross income. For example, if your AGI is more than
$39,000, then your casualty loss would be reduced to zero:
| Loss-reduction
example |
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Loss
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$4,000
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First reduction
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( 100)
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Remaining loss
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3,900
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10% AGI
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(3,900)
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Net loss for tax
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0
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Finally, assuming you don't lose all your loss to
the reductions, a casualty loss is an itemized deduction on Schedule
A.
-- Posted: April 15, 2003
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