As a result of the flooding in the Mt. Pleasant and Midland areas this June, H&S Companies wants you to know we stand ready to help! If you suffered damage to your home or personal property, you may be able to deduct the losses you incurred on your federal income tax return. Here are a few tips you should know about deducting casualty losses:
• Casualty Loss: You may be able to deduct casualty losses based on the damage done to your property as a result of the flooding.
• Normal wear and tear: Casualty loss do not include losses incurred from normal wear and tear to your property.
• Covered by insurance: If your property was insured, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct any casualty losses as a result of the flooding. You must reduce any losses by the amounts of any reimbursements you have or are expected to receive from your insurance company.
• When to deduct: As a general rule, you must deduct the casualty loss as a result of the flooding when you file your 2017 tax return. However, if Isabella and Midland counties get declared as a federal disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your 2017 return or on an amended 2016 return. Claiming a disaster loss on the 2016 return may result in a lower tax for 2016, often producing a refund.
• Amount of loss: You figure the amount of your loss using the following steps:
o Determine your adjusted basis in the property before the flooding. For property you buy, your basis is usually its cost to you.
o Determine the decrease in fair market value, or FMV, of the property as a result of the flooding. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the flooding.
o Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
• 10 percent rule: Casualty losses on personal-use property must exceed 10% of your adjusted gross income.
• Future income: Do not consider the loss of future profits or income due to the casualty as you figure your loss.
• Business or income property: Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.
For more information regarding casualty losses, please visit the IRS website here for further details and instructions: https://www.irs.gov/taxtopics/tc515.html
As always, feel free to give us a call at 989-817-4900 or check out our Mt. Pleasant location page and reach out to one of our CPAs!