Casualty Losses

Unusual weather and other environmental conditions can have a major physical and financial impact on you. Earthquakes, fires, floods, hurricanes, tornadoes, thefts, and other accidents can cause financial losses that you may be able to deduct as a casualty loss.

We hope this brief overview of casualty losses and how they might impact your tax return along with an emergency supplies checklist and tips on how to prepare for an earthquake will be helpful and thought provoking.

This brief overview is by no means complete, so please contact us for help understanding how these elements may affect you.

Business or Personal Casualty

Casualty losses are categorized as either business or personal casualty losses. While business losses are fully deductible without limitations, the amount of personal casualty losses you can claim must first be reduced by $100 for each event, then the total of all events for the year be reduced by 10% of your AGI.

Casualty Loss Defined

A casualty is defined as the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Disaster losses are casualty losses that occur in a region which the President has declared a disaster area.

Casualty losses have to be taken in the year in which they occur unless they occur in a designated disaster region, in which case the losses can be taken either in the year of the loss or the year prior to the loss.

Casualty Losses & Your Environment

Unusual weather and other environmental conditions can affect you both physically and financially.

Weather: Weather.com allows you to obtain a current report and five day forecast for any city or zip code.

Severe Weather: The National Weather Service offers state reports and warnings by clicking your state in a map of the United States.

Hurricanes: The National Hurricane Center offers many valuable resources for tracking and anticipating hurricanes threatening the United States which is particularly important for those living in hurricane prone areas or planning to visit those areas.

Earthquakes: Earthquakes are extremely unpredictable, so being prepared for an earthquake by following an Emergency Supplies Checklist and Family Earthquake Preparation Guide can help you prepare for the eventuality if you live in earthquake prone areas. Earthquake resources include:

– California State Department of Emergency Services
– Caltech
– United States Geological Survey

Determining the Loss

You can figure out the deductible loss on each item lost in the casualty by comparing the cost of each item with their fair market value; the lesser of the cost will be the deductible loss. Then, add the amounts for each item together to determine the total casualty loss.

Earthquake Preparation

Plan on having enough supplies to get you and your family through at least 72 hours. There’s a good chance that traditional emergency response teams may be too busy to take care of you and your family after an earthquake. You need to prepare your home and neighborhood for that possibility. You can be better prepared with proper supplies and keep in mind the following tips:

– During an earthquake, do your best to stay away from heavy furniture, appliances, large glass panes, shelves holding objects, and large decorative masonry.
– Kitchens and garages tend to be the most dangerous places because the type and number of items kept there, so stay away from these areas if possible.
– Hallways are usually one of the safest places to be during an earthquake, so make sure you keep it clear at all times.

Emergency Supplies Checklist

Stocking up now on emergency supplies can increase your safety and comfort during and after an earthquake or other disaster/emergency. Keep enough supplies for at least 72 hours.

Essentials
– Baby supplies (formula, bottle, pacifier, soap and baby powder, clothing, blankets, baby wipes, disposable diapers, canned food and juices
– Blankets or sleeping bags
– Can opener (non-electric)
– Cash and change
– Essential medications
– Extra pair of eyeglasses
– Extra pair of House and car keys
– Fire extinguisher – A-B-C type
– First aid kit, freshly stocked, and first aid book
– Food, water and leash (or carrier) for pets
– Food
– Portable radio, flashlight and spare batteries
– Water – 1 gallon per person per day x7 days
– Water purification kit

Sanitation Supplies
– Bar soap, liquid detergent, shampoo
– Feminine hygiene supplies
– Household bleach
– Large plastic trash bags & cans for waste
– Tarps and rain ponchos
– Toilet paper
– Toothpaste and toothbrushes

Safety and comfort
– Candles and matches
– Change of clothing
– Communication kit: paper, pens, stamps
– Garden hose for siphoning and firefighting
– Heavy gloves for clearing debris
– Knife or razor blades
– Light sticks
– Sturdy shoes
– Tent

Cooking
– Camping stove for outdoor cooking
(ensure no gas leaks & never use charcoal indoors)
– Heavy-duty aluminum foil
– Paper plates, cups and paper towels
– Plastic knives, forks, spoons

Tools and Supplies
– Adjustable wrench for turning off gas
– Axe, shovel, broom
– Bicycle
– City map
– Coil of 1/2” rope
– Plastic tape, staple gun and sheeting
(for window replacement)
– Tool kit with a screwdriver, pliers, and hammer

Insurance Reimbursement

Your casualty loss must be reduced by the amount of any insurance reimbursement. This means you may not have a casualty loss if you are insured for your loss reimbursed by your insurance company with an amount equal to the FMV of the item(s) lost.

Record Keeping

It is good practice to periodically take photographs of the interior and exterior of your home and other property to help you determine the loss, should one occur.

The Plan

– Store a three-day (minimum) supply of food, water, clothes, medical supplies, and other necessary equipment for every member of your family and make sure everyone knows where this is stored.
– Keep an extra pair of eyeglasses and house and car keys on hand.
– Keep extra cash and change. If electricity is out, you will not be able to use an ATM.
– You may not all be together when an earthquake hits. Decide where and when to reunite your family should this be the case.
– Include your babysitter and other household help in your plans.
– Choose a person outside the immediate area to contact if family members are separated (long distance calls will probably be impossible immediately following an earthquake).
– Make arrangements to have someone pick your children up from school or daycare if you are unable to get to them.
– If you have a family member who does not speak English, prepare an emergency card written in English to be kept with them at all times which includes their identification, address, and any special needs such as medication or allergies.
– Conduct earthquake “Duck, Cover, and Hold” drills every six months with your family.
– Establish all the possible ways to exit your house. Keep those areas clear.
– Know the safest place in each room of your home. Remember that moving from room to room during an earthquake can be difficult and dangerous.
– Make sure you know the location of shutoff valves for water, gas, and electricity, and learn how to shut them off. Your utility company can help you with this.
– Make sure everyone in your family knows the locations of the nearest fire and police stations.
– Contact your local Red Cross Chapter and Office of Emergency Services to make sure you understand their plans for emergency shelters and temporary medical centers in case of a disaster.
– Take photos and/or videos of your valuables. Make copies and keep them in another city or state.
– Make copies of vital records and keep them in a safe deposit box in another city or state.

Taxation Solutions, Inc.

12250 Queenston Blvd Suite H, Houston, TX 77095