OTHER EXCEPTIONS FOR CASUALTY LOSS WRITEOFFS
The $100 and 10 percent limitations do not apply to casualty or theft losses of business property or investment property, such as rental real estate. Those categories of losses are fully deductible.
Two sets of rules govern deductions for losses to property used partly for business and partly for personal purposes, such as a car. Use an allocation method to compute the loss deduction. Treat the event as if it was a loss to two pieces of property, one business and the other personal. Take a full deduction for the business use part, regardless of whether anything may be deductible for any personal use losses. In the case of a car used 70 percent of the time for business driving, claim a business expense deduction for 70 percent of the repair costs.
INCIDENTAL EXPENSES RELATING TO CASUALTIES OR THEFTS
These expenses are not part of casualty or theft losses. Accordingly, no write-offs whatsoever are allowed for such items as: temporary lights; fuel; moving; rentals of temporary quarters and cars; legal fees to defend against suits for negligent operation of vehicles; towing charges; and the care of personal injuries, although these kinds of outlays may qualify as deductible medical expenses.
HELP FROM OTHERS AND DISASTER RELIEF
Your deductible loss is cut down by cash or property you receive from your employer or from disaster relief agencies specifically for the purpose of restoring your property, but not by cash gifts that are not so designated. This holds true even though the money goes to pay for the rehabilitation of property. Any food, medical supplies, and other forms of subsistence you receive that are not for replacing property do not reduce your loss, and do not count as taxable income.
RULES RELAXED FOR NATIONAL DISASTERS
Tax code changes enacted in October of 2008 eliminate or modify several restrictions on deductions allowed victims of all federally-declared disasters that occur during 2008 and 2009. These revisions -- tucked into the Emergency Economic Stabilization Act of 2008 -- allow disaster victims to claim their entire losses, not just the portion that exceeds ten percent of AGI.
Under the new rules, the $100 floor increases to $500. And no longer is tax relief available only for individuals who itemize on Schedule A. Even if they choose to use the standard deduction, they still can claim disaster losses.
Julian Block is an attorney based in Larchmont, N.Y. This article is excerpted from his book, "The Home Seller’s Guide To Tax Savings: Simple Ways For Any Seller To Lower Taxes To The Legal Minimum."
