facebook twitter googleplus pinterest
Home • Site Map • Cart • Tracking • Links
Disasters and Taxes

What Is The Effect Of Losing Your Home In A Declared Disaster?

By Jim Vander Spek

Like many others you may have suffered losses in a declared disaster area. In Southern California, where I live, thousands of homes were lost as a result of the fires that struck our region in October of 2007. If you have experienced a loss, you need to understand how your loss and this being declared a federal disaster could affect your income taxes. Potentially the most critical tax issue kicks in if you are paid more by your insurance company than the tax basis (generally, the cost) of your property.

In that case, you should spend all of the insurance proceeds to rebuild and replace the property. Reinvesting in this way will usually eliminate any tax issues relating to gains from the insurance proceeds. Being in a federal disaster area means that you have at least four years to reinvest.

Of course, many taxpayers had losses other than their homes, including vehicles, furniture and other items. Whatever it is that you have lost will be considered a casualty loss and may result in a tax deduction.Here is how this works. First, you need to determine the fair market value and the cost of that which you lost and use the lower number. Form 4684 is used to calculate your loss. This form will direct you to subtract $100 and any insurance proceeds. You must then reduce your loss further by 10 percent of your adjusted gross income. Finally, you will need to carry the remaining loss to Schedule A, where it is treated as an itemized deduction. It only helps if you itemize.

Obviously, overcoming these various thresholds stops most people from claiming a casualty loss unless it is significant.Once you determine that you do have a deductible casualty loss as a result of the recent fires, you have a choice. Since this was a federally declared disaster, you will be able to claim the loss either on your 2007 return or on an amended 2006 tax return. The idea is to get a tax refund back to you as soon as possible. Since it is near time to file for 2007, you may want to wait and be sure that you claim the deduction in the year that will result in the best tax advantage.

Unfortunately, you cannot claim any loss until you know the final settlement. If you are a business owner or investor, you may be able to take advantage of a special recent tax provision that applies only to those in a federally declared disaster. It allows you to use your insurance proceeds to buy other types of property used in any productive trade or business. For example, an avocado farmer could use the insurance proceeds from the loss of his grove to start a pizza parlor.

The most distressing scenario is for those who bought their homes long ago and were underinsured when the fire struck. Over and above experiencing a devastating casualty loss, they will not have any tax relief, either. This disaster is causing many of us to dig up our homeowners policies and to make sure that we have adequate insurance coverage. It is also a reminder to maintain good records that include costs and photographic or video evidence of the many things that we own. Keeping this documentation safely off-site is essential.

Jim Vander Spek is a CPA in the firm Vander Spek & Corsello, CPAS with offices in Escondido, CA. http://www.vanderspekcpas.com/


Item Search
Search Storeitfoods.com

Search Storeitfoods.com

Page Search
Storeitfoods.com
Can, Dry, Freeze Dry...

Can, Dry, Freeze Dry...

Food Prep & Storage

Food Prep & Storage

Tools & Supplies

Tools & Supplies

Food and Water

Food and Water

Parts

Parts

On Sale

On Sale

Informational Pages

Informational Pages


Shopping Cart
Storeitfoods.com shopping cart
Shop Storeitfoods.com

Shop Storeitfoods.com

Items: 0
Subtotal: $0.00

Note: All prices in US Dollars

Back to Disaster Preparation

Back to Disaster Preparation

Please Note:
Preparedness - "How To" GuidesLearn how to prepare for an emergency. Learn how to cope during an emergnecy. FREE Shipping - Some ProductsInstant Rebates = Free Shipping. No charge for shipments within the Continental U.S. - Discounted Shipping in other delivery areas. Product SelectionStore-It Foods carries hundreds of different products related to food storage, food preparation, food preservation, and emergency preparedness.  Meet the ManufacturersLearn a little more about some of the many companies that produce products carried by Store-It Foods Attention Canadian ShoppersUnfortunately, there are times when "factory direct" is not an option for our Canadian deliveries. Fortunately, in a great many instances it is possible to overcome this difficulty.

About Us  ·  Return Policy  ·  FAQs  ·  PayPal  ·  Privacy Policy  ·  Sitemap  ·  Shipping / Returns
Copyright © Garilyn Enterprises. Brandon, Manitoba
mailto:support@storeitfoods.com