A casualty loss is classified as “The damage, destruction or loss of your property”. These losses can be tricky to report and deduct on your taxes. However, we have compiled a few tips to help you.
In Minnesota, both federal and state tax reporting follow the same set of procedures. If you have a casualty or loss relating to real property (your home, household items or vehicles), you are allowed to deduct it on both your federal and state tax return. A casualty event includes unexpected or uncommon events and disasters but does not include normal wear, tear or breakdown from usage.
If your property is not completely demolished you need to find the lesser of the adjusted basis of your property or the decrease in fair market value. This can be difficult to do, so it is recommended that consult an appraiser. Once you have calculated this amount, you must reduce this loss by any reimbursement which you received from insurance.
Finally, you must follow the “$100 and 10% rule.” For all property held for personal use, you must subtract $100 from each casualty, disaster or theft. Once you have found the final amounts, you need to sum them, and subtract 10% of your adjusted gross income from the total. This amount will give you your total allowable casualty and theft losses for the year.
The 10% rule is the most difficult step in deducting losses from a disaster. Once you have subtracted 10% of your adjusted gross income, you may not qualify to deduct anything. This is quite common, with the IRS reporting that only 160,000 tax returns reporting casualty losses were filed in 2012.
For more information on casualty losses, refer to IRS publication 547.