Income Tax Deductions for Property Loss — February 2010, reviewed January 2013
Dealing with property loss after a disaster, like a flood or tornado, is a challenge. However, property losses from natural disaster are tax deductible. Such deductions, which are allowed for partial or total loss of personal or business property, could greatly reduce the amount of federal income taxes owed for the year the disaster occurred.
If you claim a theft or casualty loss resulting from a disaster you may be asked to show:
- The kind of disaster and when it occurred;
- The damage was direct result of the disaster;
- That you were the owner of the property;
- For business and rental property, your income tax basis in the property. In general, this is the original cost of the property plus the cost of any improvements before the loss, minus depreciation claimed for income tax purposes.
- Fair market value before and after the disaster; and
- Any insurance benefits or other compensation received including free repairs, restoration and clean-up from any disaster relief agencies.
- Be sure to keep for documentation any before-and-after photographs, receipts from both cash and credit transactions, check and debit card statements, deeds, purchase contracts and professional statements. This is good supporting evidence for casualty claims.
For more details, contact your local tax preparation professional for advice. IRS offices and their website, www.irs.gov has more information on casualty losses, too.