@Investor_ wrote:
My loss occurred in the Los Angeles wildfires of January 7, 2025. This is a federally declared disaster. Even though the loss occurred in 2025, I want to deduct it against my 2024 taxes. Both Turbo tax and other federal resources say this is permissible. My basic question still stands: how do I list each and every item of personal property that was destroyed in this fire, including date of acquisition? Who has that kind of records?
You are correct that wildfire losses that occur in 2025 can be claimed on a new or amended 2024 return, to take advantage of the loss deduction and get any money back sooner than waiting for April 2026.
Basically, you need to make your best guess. Hopefully you have pictures showing the inside of your house, or relatives have pictures you can get copies of. (I would recommend everyone take "insurance pictures" showing everything inside their house -- clothing, appliances, furniture, artwork, etc. -- and store them in a safe off-site location, such as your workplace or a relative's house.) If audited, the IRS will be looking at what is reasonable. They're not going to trust that you had a $1million Rembrandt painting in a one-bedroom cottage. They're not going to trust that you had a $40,000 8K 96 inch wide-screen TV on a janitor's salary. But if you have a few pictures of the inside of your house (from Christmas, birthday parties, etc) and it seems to match what you claim as a lifestyle and your income and other resources, and seems reasonable, they should mostly leave you alone.
Here are some important principles that may help you.
You can deduct the loss of the fair market value of your items, or your original cost, whichever is less. Fair market value is what they were worth (used) at the time of the fire. You must also reduce your loss by your insurance reimbursement (Turbotax will calculate this for you). For example, if you estimate the fair market value of your items was $50,000 and you got an insurance payment of $50,000 for your items, you have no loss.
If your insurance payment was more than the original cost of the items, you don't have any loss but instead have a capital gain. For example, you had a sofa that cost $1000 and was worth $500 at the time of the fire. If insurance pays less than $500, you have a loss. If insurance pays more than $500, you don't have a loss, but you don't have a gain. If you have replacement cost coverage and insurance pays you $1500 because that's what a new sofa will cost, you actually have a gain of $500. You don't need to report this gain as taxable as along as the items are one-for-one replacements. But the new items inherit the old cost basis. That means that even though the new sofa cost $1500, its cost basis is $1000 (the old cost basis) and this has an impact if you sell it used, or donate it.
You can't deduct any loss that was reimbursed by insurance or that would have been covered by insurance except you decided not to make a claim.
Your home is similar, you can deduct the fair market value or your cost basis, whichever is less. If your home cost $200,000 and was worth $500,000 and was totally destroyed, your loss is only $200,000. However if insurance pays to rebuild the home, you have the option to not report a loss and to defer the gain. For example, if insurance pays $500,000 to rebuild the home, you don't have a loss to declare. You don't have to report a gain either, but your new home inherits the old cost basis of $200,000 which may result in a larger capital gain if and when you sell.
You may want to get professional advice before you spend a lot of time in Turbotax. Depending on your insurance situation, you may not have a deductible loss after spending all that time on paperwork.
