I would like to send you my weekly tax letter to keep you informed and also to stay in touch. I will try to keep it to the point and informative. If you have questions, please feel free to call me at 713-785-8939. If you think a friend would benefit then pass it on. Let’s begin.
Casualty Loss Deduction from Hurricane Harvey
I promised that I would explain the rules and the math behind this deduction in my last letter. I will try to give you the most important things you need to know in a simple example. Remember to take photographs of the damage and to use your HCAD appraisal for your allocation. This example will have a family that had their home and their car flooded.
For each asset, you are allowed to deduct the lower of the fair market value (FMV) before the storm or your cost basis, less insurance proceeds, less the FMV after the event, less $100 per item, and for each event subtract 10% of your adjusted gross income (AGI).
Example: Your home was flooded by Hurricane Harvey. The FMV of your home before the event was $300,000, of which $100,000 was land and $200,000 was improvement. You bought the home in 2010 for $150,000. The FMV of the improvement after the event was zero, your insurance proceeds were $40,000, and your AGI was $120,000. Your car was a total loss. Your cost was $21,000 and the FMV before the storm was $10,000, the insurance proceeds were $7,000.
Your Casualty Loss Deduction would be $50,800. Computed as follows: ($100,000 less $40,000 less $100 plus $10,000 less $7,000 less $100 less $12,000 equals $50,800).
This example is very simplified and does not include personal property. I would combine your personal possessions such as furniture, clothing, and household items into one amount. Remember, you deduct the lower of FMV or cost. Also remember that you may amend your 2016 tax return to take the deduction or wait and take it on your 2017 Form 1040. You will also need to provide the date you acquired the property and the date you incurred your casualty loss. The casualty loss deduction is taken on Form 4684 Casualties and Thefts. I imagine this leaves many of your questions unanswered, so please give me a call if I can be of any further assistance.
New Filing Deadline
The filing deadline for income tax and payroll tax returns and estimated tax payments due on or after August 23, 2017 and before January 31, 2018 have been pushed back to January 31, 2018. It includes taxpayers who had valid extensions to file their 2016 return that would have been due on either September 15, 2017 or October 16, 2017. It also includes the quarterly estimated tax payments originally due on September 15, 2017 and January 16, 2018, and the quarterly payroll tax returns normally due on October 31, 2017. Please don’t wait until January 31, 2018. Come and see me as close to the original due date as possible – you will be glad you did. Thank you. See www.irs.gov for more details.
Till next week,
Robert Stevenson, CPA
September 12, 2017