It depends. Here is information on Casualty Losses and recording them in TurboTax, plus outlined below is information from the IRS regarding casualty losses.
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Per IRS: Casualty and Disaster Tax Losses
A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. If the damage is to personal, income?producing or business property, taxpayers may be able to claim a casualty loss deduction on their tax return.
Taxpayers generally must deduct a casualty loss in the year it occurred. However, if the property was damaged as a result of a federally-declared disaster, taxpayers can choose to deduct that loss on their return for the tax year immediately preceding the year in which the disaster happened. A federally-declared disaster is a disaster that took place in an area declared by the President to be eligible for federal assistance. Taxpayers can amend a tax return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Figuring Loss
Taxpayers may need to reconstruct their records to prove a loss and the amount of the loss. To compute loss, determine the following figures:
- The decrease in fair market value of the property that resulted from the casualty or disaster.
- The adjusted basis of the property – this is generally what was paid for the property, increased or decreased, because of certain events.
Taxpayers may deduct the smaller of these two amounts, minus insurance or other reimbursement. Additionally, certain deduction limits apply. See Publication 547, Casualties, Disasters and Thefts, for details on these limits and Publication 551, Basis of Assets, for additional information on basis.
If the casualty loss deduction causes a taxpayer’s deductions for the year to be more than their income for the year, there may be a net operating loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.
Determining the Decrease in Fair Market Value
Fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV used to figure the amount of a casualty loss is the difference between the property's fair market value immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without a competent appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in fair market value.
Generally, the cost of cleaning up or making repairs if the repairs are:
- Actually made
- Not excessive
- Necessary to bring the property back to its condition before the casualty
- Only made to repair damage
- Not adding value to the property or making it worth more than before the disaster happened
For more information on losses, see these IRS publications:
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Publication 547, Casualties, Disasters, and Thefts – This has information on figuring your casualty loss deduction.
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Publication 584, Casualty, Disaster, and Theft Loss Workbook – This can help individuals make a list of stolen or damaged personal-use property and figure the loss. It has a room-by-room listing to help recreate an inventory and figure the loss on the home and its contents and any motor vehicles.
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Publication 584-B, Business Casualty, Disaster and Theft Loss Workbook – This is available to help businesses list stolen or damaged business or income-producing property and to figure the loss.
