If a sudden, unexpected, or unusual event damages your property, you may be eligible to claim a casualty deduction for that loss during that tax year. This loss is typically caused by an event that was not your fault -- meaning you can't claim a deduction for items you misplaced or broke, for example.
The first thing you need to do is prove to the IRS you're the owner of the property. Additionally, if you receive -- or anticipate receiving -- any insurance reimbursement or lawsuit settlement regarding your losses, you must notify the IRS. Casualty loss deductions are for unrecoverable losses only. If your insurance fully covers your losses, you're not eligible for a casualty loss deduction.
If you lost property due to theft, you must be prepared to show the IRS a police report documenting the theft. If you lost property due to a weather event or fire, be sure to record all of the details. Photos of the destruction and damage are helpful, if you can provide them.
Holding on to your records and receipts -- and making sure that they're organized -- is a good way to prove your property ownership. Keep the following things whenever you purchase or improve a big ticket item, and you won't be struggling to prove ownership when tax time comes:
- Paperwork showing you owned the property damaged, stolen or destroyed
- Receipts showing both the original cost of the item and any improvements you have made to the property
- Proof of the property's current and fair market value, such as appraisals or current insurance statements
These records can all save time and make things easier in the event of any loss whether you claim a casualty loss deduction or not, and help if you have any issues with the IRS.
Keep reading to learn how to claim a personal casualty loss deduction.