| A casualty loss is resultant of an "act of God" disaster | | | | insurance company paid you but does not meet the |
| to your property like a flood, hurricane, tornado, etc. | | | | value of your property before your casualty loss, you |
| Most property owners think that if their insurance | | | | have suffered a tax deductible loss. |
| covered the damage sans a deductible, they have no | | | | A lot of expenses can come into play when doing the |
| basis for a loss on their income taxes. This is where | | | | math for this equation. Some of the things that will help |
| they are wrong. | | | | determine if you have a tax deductible casualty loss |
| Tax deductions generally reduce your taxable income, | | | | are construction costs, rent loss, risk that tenants may |
| but they do not reduce your federal income tax. For | | | | not return after the casualty, construction management |
| example, if you had $100,000 of federal tax deductions | | | | costs, construction risk, interest rate risk, risk of |
| and your tax rate was 35%, you would reduce your | | | | increased operational costs, and more. |
| federal taxes by $35,000 if you claimed the $100,000 | | | | A careful appraisal after construction may prove that |
| deduction. Most tax deductions require that you have | | | | the construction repairs added no value to the |
| cash expenditure. However, some real estate tax | | | | property, since they just returned it to its pre-casualty |
| deductions and casualty loss may not require a current | | | | condition. In a lot of cases a market value loss of |
| period cash outlay. | | | | 30-40% of the property value before the casualty is |
| Many real estate owners and investors miss out on | | | | often experienced. This is an excellent credential for a |
| this deduction which the federal tax code allows them. | | | | tax deduction. |
| Real estate owners have suffered loss when the | | | | The casualty loss aspect of the tax code was written |
| current market value of their property combined with | | | | by Congress in an effort to encourage investment in |
| their insurance proceeds is not equal to the property's | | | | real estate. If you own real estate investment property |
| fair market value prior to the casualty loss. In other | | | | and have experienced such loss, you would be foolish |
| words, if your property value immediately following | | | | not to pursue a tax deduction for casualty loss. It |
| your loss is added to the amount of money the | | | | would be like handing money back to the IRS. |