If you've suffered the results of a theft, accident, fire, flood, or some other casualty during the year, you may be able to deduct some of your unreimbursed losses.

 

Save Money In particular, it's important to know that if you're in an area that was declared a federal disaster area by the President, the tax deduction for your casualty losses can be claimed retroactively, by treating them as if they occurred in the previous year and filing an amended tax return for that year. This allows you to receive a quick tax refund - money that you can use right away.

Casualty losses are treated somewhat differently depending on whether the loss occurred to property used in your trade or business, property used to generate investment income, or property used for personal or family purposes. However, regardless of the type of property, the loss must first be reported on IRS Form 4684, Casualties and Thefts. For that reason we're going to discuss all types of casualties, both business and personal, in the following section.

 

Among the Business Tools are Form 1040 and Form 4684. They are in Adobe Acrobat .pdf format, and you will need Acrobat Reader 4.0 to view the files and print them. A free version of Acrobat 4.0 is available in the Business Tools area as well.

In order to understand and claim a casualty loss on your tax return, you need to know:

• What is a casualty?
• How do you measure a casualty loss?
• How do you prove a loss to the IRS?
• How do you handle insurance reimbursements?
• How do you calculate the tax deduction?
• Can you actually have a casualty gain?
• How do you report a casualty gain or loss on your tax return?