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TagsBY GERALD J. ROBINSON
NEWJERSEYNEWSROOM.COM
Uncle Sam, through the Federal Emergency Management Agency, stepped in to help homeowners after New Jersey was hammered with storms and floods last winter. More than 5,000 New Jersey residents filed with FEMA for disaster aid.
More help may be available from Uncle Sam in the form of casualty loss deductions that New Jersey homeowners can claim on their tax returns. And while the amount of repair costs generally is accepted as the limit on your deduction, sometimes the deduction claimed can exceed repair costs.
Here's the story.
Suppose that during a storm a tree fell on your house and the attached garage. You repaired all the damage to the house but made the garage into a carport to save money. Can you deduct more than your repair costs as a casualty loss?
Maybe, if the decline in the value of your property exceeded your repair cost.If you have uninsured damage to your home from a storm or other "casualty," you may be able to get a deduction for the cost of repairing the damage on your tax return. And there's a chance you can boost the amount of the deduction above your repair costs if you get an appraisal of your home.
You have to jump through some tax hoops to get a casualty loss deduction. To be entitled to the deduction, your loss must exceed 10 percent of your adjusted gross income and be more than $100. In addition, the amount you can deduct can't exceed the lesser of two amounts: the difference between the value of your home before and after the damage or your "adjusted basis" for your home -- generally your cost for the home plus the cost of permanent improvements.
Usually the limit on the deduction is the difference between the value of your home before and after the casualty, not adjusted basis. Most owners use the cost of repairs to peg this loss in value. But there may be a way to increase the deduction beyond the repair cost.
How do you boost your deduction? The short answer is that if repairs did not restore your home to its former value, get an appraisal that shows a decrease in value of your home from the damage that is more than you paid for the repairs. For an appraisal, check with your local real estate agent.
A casualty loss deduction is permitted for the loss in value to your home even though you choose not to restore the property to its prior value. If the loss in value of your home from the damage exceeds your repair bills, you should get an appraisal to substantiate a deduction on your return that exceeds the amount you paid for repairs.
In addition to the requirements that your loss must exceed 10 percent of your adjusted gross income and be more than $100, no deduction is allowed to the extent the loss is compensated for by insurance. Moreover, if a claim for insurance reimbursement exists as to which there is a reasonable prospect of recovery, the loss is not deductible until it can be ascertained with reasonable certainty whether such reimbursement will be received.
What kinds of damages qualify as a "casualty?"
In a ruling concerning flood and storm damage, the Internal Revenue Service has stated that the term "casualty" refers to an identifiable event of a sudden, unexpected, or unusual nature, and that damage from progressive deterioration through a "steadily operating cause" is not a casualty. Under this definition, losses from physical damage as a result of wave action or wind during a storm are deductible, as are losses due to flooding of buildings and basements as a result of a storm. But damage due to gradual erosion is not a casualty.
If you're going for the bigger deduction, it would be wise to become more familiar with the deduction rules. The IRS has a useful explanatory guide with the cheerless title, IRS Publication 547, "Casualties, Disasters and Thefts." It's available at irs.gov.
Gerald J. Robinson, Esq., formerly tax counsel to the New York City law firm of Carb, Luria, Cook & Kufeld, is a member of the New York and Maryland bars. He received his B.A. degree from Cornell University, an LL.B. from the University of Maryland and an LL.M. in Taxation from New York University. Prior to entering private practice he served in the Office of Chief Counsel, Internal Revenue Service. He is the author of the treatise, Federal Income Taxation of Real Estate, now in its sixth edition, and wrote the monthly newsletter, Real Estate Tax Ideas, both published by Warren, Gorham & Lamont. He is also a frequent lecturer and contributor to various professional journals.
