Casualty Loss Deductions (FEMA DR-4586TX)

[BB_TX]

Lost 2 oak trees (30 yrs old), significant damage to 3 others in 2021 storm.

No coverage by home insurance.

Since my residence is in the declared event area, all associated loss is fully deductible.

Can I use quoted replacement costs to reduce the FMV of the residence at time of the event when calculating loss?  (Quote is from local nursery by certified arborist.)

[ColeenD3]

The residence was not affected and does not figure into the equation. You lost trees.

Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property (trees) to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property’s FMV immediately before and immediately after the casualty or theft.

In your case, after the FMV of the trees after the event was zero. You need to estimate what the FMV would have been before. The replacement price of the trees is a good approximation.

[BB_TX]

I'm using the term "residence" to describe all land and attached structures.   (I also had damage to pool equipment also not covered by insurance.)  Form4684 requires listing the property that suffered loss.

Is it necessary to be specific a) trees, b) pool equip, etc. or can all this be rolled up via a legal property description?
FMV is just taken from the county tax roll and replacement cost deducted to arrive at FMV after the event (line items 5 & 6 on F4684).   Any issues with this approach?

[ColeenD3]

Since there is more damage than just trees, you can say "residence".  The description of how to determine the FMV before and after is still valid. The county tax rolls do not give the FMV. It is what your property would have sold for before the damage and what it would sell for after the damage.

PUB 547

[BB_TX]

To determine FMV I could spend the money and hire an appraiser or I could estimate it from comps in the neighborhood real estate market but it really doesn't matter if I'm using actual repair/replacement costs as the basis for reduction in value: ValueX - repair$ or ValueY - repair$ is still going to work out to the same amount in deductible loss.  So my question is would the IRS complain if I used a very conservative valuation from the tax roll?

[Cynthiad66]

Yes.  Tax valuation is most times lower than actual appraised value.  I say yes they will complain, but maybe not complain but perhaps recommend adjustments or proof of the valuation.

Honestly, I cannot say what IRS would do but if it is not the correct thing, I am sure the IRS will make adjustments.  It is best to get or create a realistic value.  @ColeenD3 gave great advice, ,PUB 547,  for determining your Casualty loss.  @BB_TX

[BB_TX]

PUB 547 snippet

Cost of cleaning up or making repairs.

The cost of repairing damaged property isn’t part of a casualty loss. Neither is the cost of cleaning up after a casualty. But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions.
• The repairs are actually made.
• The repairs are necessary to bring the property back to its condition before the casualty.
• The amount spent for repairs isn’t excessive.
• The repairs take care of the damage only.
• The value of the property after the repairs isn’t, due to the repairs, more than the value of the property before the casualty.

[I believe I am meeting all the requirements, although what is considered excessive? >10%, 20%, x% of property value?]

Landscaping.

The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. You may be able to measure your loss by what you spend on the following.
• Removing destroyed or damaged trees and shrubs, minus any salvage you receive.
• Pruning and other measures taken to preserve damaged trees and shrubs.
• Replanting necessary to restore the property to its approximate value before the casualty.

[Given the above, it seems reasonable that I could calculate loss as the difference in FMV minus all repairs and/or repair estimates to bring equipment and landscaping back to near original state.  Which brings me back to the earlier question of estimating FMV, it seems I'm stuck paying for an appraiser.]

[Cynthiad66]

Using an Appraiser can be added to the expense of determining the FMV of the property.  It will also guarantee that there is no excessive valuation for such items.  

[nmelhiser]

How do I get a Form 4684 ???  It is to be used for reporting Casualty Losses.  I have a farm house that was destroyed by fire on 22 May 2021.

[nmelhiser]

How do I get a Form 4684 for use in reporting Casualty Losses ???  A farm house and outbuildings were destroyed by fire on 22 Mat 2021.

[PatriciaV]

Yes, you may report a Casualty Loss for all farm assets lost due to a Federally Declared Disaster.

In TurboTax, jump to the entry area for casualty loss:

1. Open your return. (To do this, sign in to TurboTax and open or continue your return.)
2. Search for casualty loss and then click the Jump to link in the search results.
   Or go to Tax Tools >> Tools >> Topic Search and enter casualty loss.
3. On the Did you have anything damaged or stolen in 2021? screen, select Yes.
4. Answer the interview questions describing your event.

When you complete the event and reach the Property Summary screen, you can enter any additional property losses by selecting the Add a Property button.

Also, review the information below under "How to Speed Up Your Refund," especially the information on how to describe your casualty loss.

I live in a federally declared disaster area, what does that mean for my taxes?