(DailyDig.com) – Hurricanes and earthquakes, among other natural disasters, cost the taxpayers billions of dollars in losses per annum. Without any aid, the loss most often drives many people to poverty, but this needs not be the case.
You can claim tax credits from presidentially declared disaster areas to help with some of the loss. Here’s some info that could help.
Event Eligibility Test
A tax-deductible casualty loss must meet the laid down criteria to qualify. It must be unpredictable, sudden, or unusual, and one that happens in a single instance. There must also be an element of nature.
Furthermore, only the individual that lost the property can claim the credit, but there’s a caveat. The claim must be in the year they experience the loss.
For a theft loss, eligibility is based on whether you can prove that theft was the cause of your loss. Missing property or suspicion of theft is not sufficient ground for the claim.
Adequate theft-proof can include statements from neighbors who saw the thieves taking away the property, newspaper accounts, and police reports.
Typically, any losses from theft and casualty fall under miscellaneous and itemized deductions, and their reporting is on IRS Form 4684, which carries over to Schedule A and the 1040 form.
The taxpayer must be able to itemize the deductions; otherwise, they cannot claim the credit.
Other conditions include the adjusted gross income (AGI) limitation of 10% and must be an amount above $500.
Casualty and Disaster
Destruction, damage, and property loss through unexpected and sudden natural events such as volcanic eruptions, floods, and earthquakes may be eligible for credits.
Unlike theft, disaster losses in presidentially declared areas are deductible in the previous year’s returns. This allows taxpayers to immediately amend their returns to get a refund that serves as a relief.
All eligible disaster areas and the years they qualify are on the list maintained by the Federal Emergency Management Agency. Usually, victims in eligible areas who sustained losses exceeding any remuneration or insurance don’t have to meet the 10% AGI threshold.
Use Form 4684 to report the loss. You don’t have to itemize the disaster loss but if you choose to, do so in Schedule A.
The IRS allows limited credit claims to natural disasters and theft victims as a relief measure. Those seeking credit must abide by the necessary IRS regulations on the loss claimed.
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