What Are Casualty and Theft Losses?

Casualty and theft losses are deductible losses that arise from the destruction or loss of a taxpayer's 澳洲幸运5开奖号码历史查询:personal property. To be deductible, casualty losses must result from a sudden and unforeseen event. Theft losses generally require proof that th🗹e property was actually stolen and not just lost or missing.

How Casualty and Theft Losses Work

Casualty and theft loss 澳洲幸运5开奖号码历史查询:deductions are only allowed for one-off events that are out of the ordinary and not a routine part of everyday life꧂. The event also must be something that a person was not engaged with when it occurred, like an automobile accide⛦nt. Natural disasters qualify, including earthquakes, fires, floods, hurricanes, and storms. Even though a loss may have been sustained by a natural cause, a loss cannot be claimed for something that occurred over time. An example of this would be property erosion, because the process is gradual.

The ability to claim casualty and theft losses was restricted for federal taxes by the Tax Cuts and Jobs Act of 2017. Some states, like New York, decoupled their deductions from the Internal Revenue Service (IRS) after 2017, so taxpayers may still be able to deduct casualty and theft losses at the state level in some states.

Losses are onlꦕy deductible if they a✅re not covered by insurance.

For example, say that during a storm that is declared a federal disaster by the President of the United States, a tree falls on your house. You get an estimate from a contractor who says repairs will cost $5,000. You file a claim with your insurance company expecting them to cover the entire claim, but the company only pays $3,000 and determines it doesn't owe you the remaining $2,000. The $2,000 personal casualty loss is deductible from your federal taxes as a casualty loss under the new limitations.

However, if the same storm that felled 🌼th🎉e same tree is not declared a federal disaster emergency by the President of the United States, you will not be able to deduct the $2,000 not paid by your insurance company from your taxes.

The Impact of th🌜e Tax Cuts and Jobs Act on Casualty and Theft Losses

According to the IRS's publication 547 "Casualties, Disasters, and Thefts," "Personal casualty and theft losses of an individual sustained in a tax year beginning after 2017 are deductible only to the extent they're attributable to a federally declared disaster." By extension, this means human activities, such as terr🦄orist attacks, theft, and vandalism that are not declared federal eme💦rgencies by the President are also not covered.

Events liste🌌d by the IRS that are deductible if the loss occurred during a declared fe🐟deral disaster include:

• Floods
• Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster
• Mine cave-ins
• Shipwrecks
• Sonic booms
• Storms, including hurricanes and tornadoes
• Terrorist attacks
• Vandalism
• Volcanic eruptions

Take note that this deduction only applies to the owner of the property. For example, if a renter’s home is damaged in a fire caused by a federally declared disaster, the landlord would be able to claim the deduction, not the renter. However, the renter may be able to take a deduction for rent payments, provided the deduction is filed in the same year that the loss occurred.

Casualty and Theft Loss Gains

Losses that have been 澳洲幸运5开奖号码历史查询:reimbursed by insurance are dis🐻allowed. Furthermore, reimbursed claims are counted as gains and may be taxed by the IRS.

For example, Mr. and Mrs. Jones own a house, as well as a diamond necklace in the house, and a car in an area that has been affected by an earthquake that was declared a federal disaster. During the earthquake, the car sustains $15,000 worth of damage, and the house foundation sustains $30,000 worth of damage. At the same time, a thief takes advantage of the confusion and mayhem during the disaster to steal Mrs. Jones' diamond necklace worth $5,000 from the house.

Mr. and Mrs. Jones have insurance coverage on the house and the car, but not the necklace, and their insurance company honors a claim to replace the car and repair the house f꧋or $45,000. That money is counted as a casualty and theft gain, and as such may be taxed. But that gain can be offset by the loss of the $5,000 necklace claimed on their federal taxes.

Also, 澳洲幸运5开奖号码历史查询:taxpayers must count claims p♍aid in a later year for losses that were deducted in a previous year as income.

Reporting a Casualty and Theft Loss

Casualty and theft losses are reported under the casualty loss section on 澳洲幸运5开奖号码历史查询:Schedule A of Form 1040. They are subject to a 10% 澳洲幸运5开奖号码历史查询:adjusted gross income (AGI) threshold limitation, as well as a $100 reduction per loss. The taxpayer must be able to itemize deductions to claim any personal losses.

A potential scenario: A taxpayer's car was stolen, as well as some jewelry that was in the car at the time of the theft. The car's 澳洲幸运5开奖号码历史查询:fair market value was $7,500, and the jewelry was worth $1,800. The taxpayer’s AGI for the year was $38,000. Assuming that deductions are itemized, the taxpayer can deduct any loss amo🐈unt above $3,800 (10% of AGI).

A total loss would be reported as follows:

$7,500 + $1,800 = $9,300 loss

$9,300 - $100 - $100 = $9,100 ($100 reduction for each loss)

$9,100 - $3,800 = $5,300 deductible loss to be reported on Schedule A.

Finall🧸y, losses that have been reimbursed by insurance are disallꦍowed. Claims that are paid in a later year for losses that were deducted in a previous year must be counted as income.

The Bottom Line

As of the Tax Cuts and Jobs Act of 2017, casualty and theft losses are deductible only when there's a natural disaster or other catastrophic event that is declared a federal disaster by the White House. However, some states will recognize casualty and theft losses that aren't the result of a federal disaster.