According to Internal Revenue Service (IRS) regulations, eligible amounts for damage to property dedicated to personal or business use can be deducted from an individual or company's annual income tax obligation. Form 4684, "Casualties and Thefts," is used to calculate and file property damage on your taxes.
Determine if your property damage is eligible for deduction according to IRS guidelines. According to investopedia.com, damages classified as "acts of God" such as earthquakes, landslides and tsunamis may qualify, as well as damage occurring in any location presidentially decreed to be a federal disaster area. Consult IRS Publication 547 for a complete list of eligibility requirements.
Gather all receipts, photos, canceled checks and other documentation supporting the value of your property loss. When completing Form 4684, you will be required to determine the fair market value of your damaged property before and after the damage occurred. Utilize the services of a professional appraiser for further verification of the loss value; it can be challenging for a non-professional to accurately determine the fair market value of property that has been used for some time.
Choose whether or not to file an insurance claim. If you choose to file an insurance claim related to your property loss, you will be required to subtract any amounts you receive from the portion of the property loss that is eligible for a tax deduction.
Calculation and Filing
Use line 37 on Form 1040 to calculate your adjusted gross income (AGI). You will need this figure on line 20 of Form 4684. You may have already completed Form 1040 if you are filing your property damage at the same time as your individual tax return.
Complete Form 4684. Begin on line one for damage to personal use property, and on line 23 for property used for business purposes. Form 4684 will take you through the process of calculating your total eligible deduction by figuring in the value of the loss, any insurance benefits you have received and your annual gross income.
File Form 4684 online at IRS.gov/efile or through the mail. Follow the link in the resources below to find a listing of IRS tax return mailing addresses by state.
Keep all pertinent documentation filed accessibly in your home or business for your valuable property to minimize the difficulty in locating the documents if you ever need to file a property damage deduction.
- Keep all pertinent documentation filed accessibly in your home or business for your valuable property to minimize the difficulty in locating the documents if you ever need to file a property damage deduction.
David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.