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Level 15
Level 15

Deductions & credits

You might be able to deduct the loss from the fire as a casualty loss, but there are a lot of limitations, so the deduction might not amount to anything. First of all, you probably have homeowner's insurance, so you must file an insurance claim. For tax purposes, the amount of your loss is the difference between the fair market value of the house before the fire and the value immediately after the fire. The loss that you can claim on your tax return is only the amount that was not reimbursed by insurance. (More about insurance below.) In calculating the deduction for a casualty loss, you first have to subtract $100 from the unreimbursed amount of the loss. Then you have to subtract 10% of your Adjusted Gross Income (AGI). What's left after those subtractions is the amount you can deduct.

For example, suppose the decrease in value not covered by insurance is $4,000 and your AGI is $37,000. Subtracting $100 leaves $3,900. 10% of your AGI is $3,700. So the amount that is deductible is $200 ($3,900 - $3,700). If your AGI was $39,000 or more you would have no deduction.

If you still have something to deduct, a casualty loss is an itemized deduction. To get any tax benefit from the deduction, your total itemized deductions, including the deductible portion of the casualty loss, have to be more than your standard deduction.

In calculating the deductible amount, if the insurance claim is still pending you have to subtract the amount that you expect to be reimbursed by insurance. If you do not receive the insurance payment in the same year as the loss, and the payment is more or less than the expected amount that you subtracted, you would have to make an adjustment on your tax return for the year that you received the insurance reimbursement.

If you think you can take a deduction for the casualty loss, see IRS Publication 547 for more details about the deduction, including the proof of loss that you will need, and how to handle delayed insurance reimbursement. You can download Pub. 547 from the following link.

http://www.irs.gov/pub/irs-pdf/p547.pdf

You cannot claim itemized deductions in TurboTax Free Edition. If you have enough itemized deductions to exceed your standard deduction, you have to use one of the paid versions of TurboTax in order to claim itemized deductions.

Here's how to enter a casualty loss in TurboTax.

  • Click the Federal Taxes tab.
  • Click Deductions & Credits.
  • Click "I'll choose what I work on" or "Jump to a full list."
  • On the screen "Your 2016 Deductions & Credits," scroll all the way down to the last section, "Other Deductions and Credits."
  • Click the Start, Update, or Revisit button for Casualties and Thefts.