In light of the events of the last year, particularly Hurricane Sandy, the preparation and filing of our 2012 individual and business income tax returns could involve the consideration of a casualty loss for far too many of us.
If your home or other property is damaged as a result of a fire, earthquake, flood, hurricane, vandalism or similar event, you may be able to take a deduction for your loss. To be deductible, the property must be damaged, lost or destroyed by a sudden, unexpected or unusual event. If you have suffered any losses, there are several tax issues that you need to consider, including valuation of the property, limitations and adjustments to the loss, insurance reimbursements and recoveries, and other factors.
The amount of any deductible loss is generally determined by the difference in the fair market value of the property before and after the loss, or in some cases, the cost of repairs necessary to restore the property to its original (not improved) condition. However, the amount of the deductible loss cannot exceed your cost basis in the property. In the case of a home or building, the cost basis of the building must be determined separate from the cost basis of the land.
The amount of the deductible loss is further reduced by any amounts covered by your insurance company, regardless of whether or not you file a claim. After the loss is determined and the insurance reimbursement is subtracted, the loss deduction is generally reduced by $100 per casualty and by 10 percent of your adjusted gross income.
Of course, documentation will be required to support any deduction, which could include appraisals, contracts, photographs, receipts, etc. Obtaining a written appraisal from a qualified appraiser to document the post-casualty, reduced value of your property could be the difference in a loss deduction that would stand up to an Internal Revenue Service examination, and could also assist with any insurance claim filings.
While recovering from a casualty loss takes time and planning, the tax considerations need to be addressed now. There are many things to consider, and our office is available to answer any tax-related questions you may have.
For many individuals and businesses affected by Hurricane Sandy, the Internal Revenue Service has extended the deadline for various tax filings and payments that would otherwise be due between October 31, 2012 and March 15, 2013, to April 1, 2013.
This filing and payment relief applies only to taxpayers located in:
· New Jersey – Monmouth and Ocean counties
· New York – Nassau, Queens, Richmond and Suffolk
Affected filings and payments:
· Individual estimated tax payments normally due
January 15, 2013.
· Payroll and excise tax returns for the third and fourth
quarters of 2012, normally due October 31, 2012 and
January 31, 2013, respectively.
· Calendar year corporate income tax returns due March
· Tax-exempt organization Form 990 series returns with
an original or extended due date between October
31, 2012 and March 15, 2013.