P/C Losses from Wildfire to Theft May Qualify this Spring for Tax Deduction

An often-overlooked deduction may help turn a major property-casualty loss into a sizeable gain at tax time, according to information released by The Insurance Information Network of California (IINC).

The deduction for unreimbursed casualty and theft losses allows uninsured property losses to be included among itemized deductions.

To qualify for the deduction, financial losses usually need to be substantial. Any significant catastrophe deductible or gap in insurance coverage — from fire, flooding or earthquake, for example — may qualify for tax deductions. Insured losses may range from wildfire damage to losses from theft, vandalism or robbery. Generally, a loss can be deducted to the extent it exceeds 10 percent of a homeowner’s adjusted gross income, less $100. If a property is used in a trade or a business, slightly different rules may apply, so it’s important to seek assistance from a qualified tax preparer.

Homeowners who feel they qualify for these deductions should collect all receipts, insurance statements, police reports (where appropriate) and other documentation and present it to a tax preparer. You can also review the “Non-business Casualty and Theft Losses” section of the Internal Revenue Service Web site at www.irs.gov and consult the Franchise Tax Bureau Web site at www.ftb.ca.gov to learn more about both federal and state guidelines for this deduction.

In regions of federally-declared disasters, such as the fall wildfires, tax filers may also be able to take advantage of extended deadlines. Wildfire victims filing unreimbursed loss deductions should write “CA WILDFIRES” in bold red letters across the top of their federal tax forms and consult tax specialists to confirm procedures and filings deadlines.

The American Institute of Certified Public Accountants and the National Endowment for Financial Freedom have written and produced “Disaster Recovery: A Guide to Financial Issues” to help people affected by disaster minimize the financial impact of a catastrophic event. The guide contains important tax information and is being distributed by participating local chapters of the American Red Cross. The guide can also be accessed via the Internet at www.redcross.org. Additional information is also available from the Insurance Information Institute at www.iii.org and the IINC Web site at www.iinc.org.