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Tax Talk with George Saenz

Ask the tax adviser

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.

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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
Loss
$4,000
First reduction
( 100)
Remaining loss
3,900
10% AGI
(3,900)
Net loss for tax
0

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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Unexpected government help for disaster victims
Getting the most from itemized deductions

Deductions and credits to cut your tax bill

Tax glossary
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