This process consists of three general steps:
1. Calculate the decrease in the property's fair market value, which is the amount equal to the difference between the property's value immediately before and immediately after the casualty loss. Compare this value with the adjusted basis of the property. Use the lower of the two values.
2. Subtract from the chosen value any insurance or other reimbursements you have received or expect to receive.
3. Subtract from that value $100, and then reduce by 10% of adjusted gross income. The value remaining is the value used as a tax deduction on your tax return.
The adjusted basis of your property is the original cost of an asset adjusted for costs of improvements, depreciation, damage and other events which may have affected its value during the period of ownership.
If you have a tax deductible casualty loss from a disaster in an area that was officially designated by the President of the United States as eligible for federal disaster assistance, you can choose to deduct that casualty loss on your tax return for the tax year immediately preceding the casualty loss tax year. This means you may want to revise the previous year¿s tax return.
If you have been affected by a presidentially declared disaster, you can ask the IRS to delay collection of tax you owe and to eliminate tax penalties and interest. You can also request copies or transcripts of previous years' tax returns from the IRS. This can assist you in getting some money back from the IRS.
Tax law is a very complicated and frustrating subject. To make matters worse, tax law changes every year. An attorney can help you understand current tax law and how it affects your income tax problem. If you have questions regarding the deductibility of your expenses, or if you need to go to tax court, an attorney can represent you and help minimize your income tax bill.
Last Modified: 01-18-2013 11:23 AM PSTLaw Library Disclaimer
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