Casualty and Theft - Insurance and Other Reimbursement

Article ID: 59034  

Casualty and Theft - Insurance and Other Reimbursement


**Personal casualty and theft losses of an individual sustained in a tax year beginning after 2017 are deductible only to the extent they're attributable to a federally declared disaster. The loss deduction is subject to the $100 per casualty and 10% of your adjusted gross income (AGI) limitations. An exception to the rule above limiting the personal casualty and theft loss deduction to losses attributable to a federally declared disaster applies if you have personal casualty gains for the tax year. In this case, you will reduce your personal casualty gains by any casualty losses not attributable to a federally declared disaster. Any excess gain is used to reduce losses from a federally declared disaster. The 10% AGI limitation is applied to any remaining losses attributable to a federally declared disaster


Insurance or Other Reimbursements

Enter on this line the amount of insurance or other reimbursement you received or expect to receive for each property.  Include your insurance coverage whether or not you are filing claim for reimbursement.  For example, your car worth $2,000 is totally destroyed in a flood in an area designated as a federal disaster.  You are insured with a $500 deductible, but decide not to report it to your insurance company because you are afraid the insurance company will cancel your policy.  In this case, enter $1,500 on this line.

If you expect to be reimbursed but have not yet received payment, you must still enter the expected reimbursement from the loss.  If, in a later tax year, you determine with reasonable certainty that you will not be reimbursed for all or part of the loss, you can deduct for that year the amount of the loss that is not reimbursed.

Types of Reimbursements
Insurance is the most common way to be reimbursed for a casualty or theft loss, but if:

  • Part of a Federal disaster loan under the Disaster Relief Act is forgiven, the part you do not have to pay back is considered a reimbursement.

  • The person who leases your property must make repairs or must repay you for any part of a loss, the repayment and the cost of the repairs are considered reimbursements.

  • A court awards you damages for a casualty or theft loss, the amount you are able to collect, minus lawyers fees and other necessary expenses, is a reimbursement.

  • You accept repairs, restoration, or cleanup services provided by relief agencies, it is considered a reimbursement.

  • A bonding company pays you for a theft loss, the payment is also considered a reimbursement.

Lump-sum Reimbursement
If you have a casualty or theft loss of several assets at the same time and you receive a lump-sum reimbursement, you must divide the amount you receive of among the assets according to the FMV (Fair Market Value) of each asset at the time of the loss.

Grants, Gifts, and Other Payments
Grants and other payments you receive to help you after a casualty are considered reimbursements only if they must be used specifically to repair or replace your property.  Such payments will reduce your casualty loss deduction.  If there are no conditions on how you have to use the money you receive, it is not a reimbursement.

Use and Occupancy Insurance
If insurance reimburses you for your loss of business income, it does not reduce your casualty or theft loss. The reimbursement is income, and is taxed in the same manner as your business income.

Main Home Destroyed  If you have a gain because your main home was destroyed, you generally can exclude the gain from your income as if you had sold or exchanged your home.  You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly).  To exclude a gain, you generally must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date it was destroyed.

For more information see IRS instructions for  form 4684.

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Views: 1938 Created on: Jun 15, 2013