How to lessen the tax liability, so you can keep as much profit in your pocket as possible.
Casualty and theft loss
You need to understand what casualty and theft loss is. Here’s what to know.
What is casualty and theft loss?
A casualty and theft loss is one caused by a hurricane, earthquake, fire, flood, theft or similar event that is sudden, unexpected or unusual. You can deduct a portion of personal casualty or theft losses as an itemized deduction.
The IRS casualty and theft loss deduction only applies to single incidents, rather than ongoing or prolonged losses. It includes events that a person could in no way predict.
It also must be something that is not a routine part of day-to-day life or any activities in which a person was engaged when the event occurred. For example, it is something like a natural disaster, is an unexpected occurrence that’s out of the ordinary and happens swiftly and without warning.pa
To be sure, most incidents covered under casualty and theft loss result from outside forces. These include natural and environmental events such as storms, volcanoes, wild fires and floods. Some covered events result from human activities, such as terrorist attacks and vandalism. This also includes societal disturbances such as riots.
Still, even if something is related to outside forces or some sort of natural process, it might not be covered. For example, this tax deduction doesn’t cover erosion, because the process is gradual. The IRS also doesn’t include anything that could be anticipated.
A person only can take this deduction if he or she is the owner of the property. If the home the person is living in sustains fire damage and he or she is renting, the landlord could claim the tax deduction, not the renter.
However, the renter might be able to claim the deduction for his or rent payments. And, the person only has a limited amount of time to take the deduction. Typically, the he or she must claim the deduction in the same year as the loss.
Casualty and theft loss example
Larry and Jenn’s home sustained major damage from an earthquake and are able to deduct some or all of their losses on that year’s tax return. This requires completing a separate form that they include with their tax return. In addition, they must be able to itemize the deductions to claim them.
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