BY JANET CRITCHLEY

SPECIAL TO NEWJERSEYNEWSROOM.COM

In a recent Brinton Eaton blog, we shared some information about how to take a casualty loss deduction on your income taxes. I’d like to review some of the information we provided, as well as add a few new tips.

To review, a casualty loss can include damage to your appliances, furniture, landscaping, trees, walkways (including boardwalks), cars, etc.

Basically, a casualty loss can be claimed for any actual damage to your property that was caused by a “casualty,” defined by the IRS as the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or even volcanic eruption.

(Normal wear and tear or progressive deterioration do not fall under this definition.)

The amount of the loss is the lesser of:

* The adjusted basis of the property – usually the cost if it is a personal asset

* The decrease in fair market value (FMV) as a result of the casualty

Both of the above items must be reduced by the amount of any insurance reimbursement and also any salvage value. If you have insurance, you must file a timely claim for reimbursement in order to take a casualty loss. If necessary, you can determine the reduction in fair market value by getting an appraisal.

Deducting the loss on your tax return

Once you determine the amount of your loss, you must subtract $100 from each casualty event that occurred during the year. Then you add up all the net loss amounts and subtract 10% of your adjusted gross income to calculate your allowable casualty loss for the year.

Importantly, if your 2012 casualty loss is from a “federally declared disaster,” there are some special rules. A disaster loss is a loss that occurred in an area determined by the President of the United States to warrant federal disaster assistance. A list of areas warranting public or individual assistance (or both) is available at the Federal Emergency Management Agency (FEMA) website at www.fema.gov.

If your 2012 loss is from a federally declared disaster, you can deduct the loss on an amended tax return for 2011. You generally have until April 15, 2013, to amend your 2011 tax return to claim a casualty loss that occurred during 2012.

Claiming a qualifying 2012 disaster loss on the 2011 tax return may result in a lower tax for that year, often producing or increasing a tax refund. Therefore, you can get a potential tax refund much sooner.

Landscaping and car losses: Some considerations

The cost of restoring your landscaping to its original condition after a casualty may help illustrate the decrease in the FMV of your property. You may be able to measure your loss by what you spend on the following.

* Removing destroyed or damaged trees and shrubs, minus any salvage you receive

* Pruning and other measures taken to preserve damaged trees and shrubs

* Replanting of material necessary to restore your property to its approximate value before the casualty

In the case of your car, price guides such as the Kelly Blue Book and National Automobile Dealers Association guide, may be useful in determining its value. You can use the books retail values and modify them by factors such as the mileage and condition of your car to more precisely arrive at your vehicle’s value. The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. If your car is not listed in the books, determine its value from other sources, such as www.edmunds.com. A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value.

Consult your financial advisor for additional information and expertise on determining and deducting any casualty losses.

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Janet Critchley, CPA, CFP®, PFS is a financial analyst at Brinton Eaton, an SEC-registered wealth management firm based in Madison, NJ. Janet specializes in designing custom planning solutions to meet the needs of clients. She can be reached at 973-984-3352. For more information, visit www.brintoneaton.com.