On behalf of Silver Tax Group posted in Back Taxes on Thursday, August 10, 2017.
Should you as a Michigan resident suffer damage to property due to a storm, there may be ways to deduct such losses on your tax returns. However, this is not always a simple matter. The IRS warns that to be available such deductions must be major and not covered by other reimbursement such as insurance.
Determine the loss
According to an IRS bulletin, the full amount of such losses generally is not deductible. There must be a connection to such loss and an event or casualty. It must also involve some sort of unexpected or unusual event like a fire, tornado or flood.
When reporting such an event on your tax returns, there will be a reduction of any deduction by any insurance payments concerning the damage. The IRS also requires that you take such a loss be taken in the year the damage occurs, though there are exceptions to this filing rule.
Determination of the loss will usually not be simple. You will need to take into account the cost basis. Then you will also need to determine the loss in fair market value due to the damage. Then you will need to subtract from the smaller of these two amounts any insurance coverage or other reimbursement you receive.
There are other IRS rules that require consideration in determining loss as well. Also please remember that business losses receive a different form of treatment than the rules concerning damage for personal property.
What should you do
Because of the complexity of making such determinations, having a knowledgeable tax attorney on your side when reporting such losses could prove invaluable. Mistakes in filing of tax returns can prove costly as the civil and criminal penalties could be severe.