A car wreck can affect your driving record, insurance costs, ability to travel to work -- and your taxes. The federal tax law offers you tax relief for damage to -- or loss of --your vehicle from an accident, because it is considered a casualty loss. To take this itemized deduction, you'll need to take into account your car's value, any recoupment from insurance or other sources and the Internal Revenue Service's ways of reducing the loss you claim.
Damage to your car from an accident qualifies for the deduction whether you or someone else drove the car. You don't lose the break merely because you or someone driving for you is at fault. To disqualify you, the damage must result from an intentional wreck or reckless driving by you or the person driving for you. Excessive speeding and driving while intoxicated may serve as examples of recklessness. To show that your vehicle was in an accident, you should get the wreck report from the police, sheriff or highway patrol. H&R Block suggests getting a newspaper account of the accident, if one exists.
Calculating the Loss
You take as the loss the smaller of what you paid for the car or the decline your car's value because of the accident. For a totaled car, the reduction is measured as the value immediately before the wreck. According to the Internal Revenue Service, car value guides and appraisals may help you establish value. You're permitted to use repair costs as a measure of decline in value if the repairs are made and limited to what was damaged, if they're necessary to restore your car to its pre-accident condition and if they do not make your car more valuable than it was before the wreck. The cost of replacing the car doesn't count in determining loss.
You must subtract from your loss any reimbursement you get or expect to receive from insurance or in a lawsuit or settlement. The IRS warns that it will disallow the break if you fail to file an insurance claim in an effort to avoid a reimbursement. Even if you bypass the insurance company, you can still count your deductible in the loss because it represents money out of your pocket.
Not all of your unreimbursed vehicle damage is tax deductible. The IRS requires you to subtract $100 for each accident involving your car during the year. You must further reduce loss (after reimbursement) by 10 percent of your adjusted gross income as reported on Line 38 of Form 1040 or 2 percent of adjusted gross income If you used the vehicle for your job.
- Internal Revenue Service: Tax Topic 515 -- Casualty, Disaster and Theft Losses (Including Federally Declared Disaster Areas)
- Internal Revenue Service: Publication 547 -- Casualties, Disasters and Thefts
- Internal Revenue Service: Instructions for Form 4684 -- Casualties and Thefts
- Internal Revenue Service: Form 4684 -- Casualties and Thefts
- United States Tax Court: T.C. Summary Opinion 2009-190 --Rohrs v. Commissioner
- H&R Block: Tax Articles & Tax Tips: Casualty or Theft Losses
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.