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The basics are the same no matter the type of disaster. We hear about having food, water, flashlights, etc. These are the items that will help get you through the first few days of an emergency. But have you considered what happens next? After the disaster, what can you do to help ease the financial impact?
Even if you are insured, large deductibles for certain natural disasters could leave you with significant unreimbursed losses. In California, we have earthquakes and large earthquake deductibles, which are sometimes 10 or 15 percent of the home value. In recent years, many insurers have added hurricane and wind deductibles that can run as high as 5 percent of the home value. This means if you have a $400,000 home, the first $20,000 of losses would not be reimbursed.
The portion of your loss that is unreimbursed by insurance may be considered a casualty loss on your taxes. Casualty Losses are calculated on IRS Form 4684, which will walk you through figuring the net amount of your loss after insurance reimbursement. The loss must also be reduced by any salvage value or other reimbursement you receive or expect to receive.
The form will then reduce your net loss by 10 percent of your adjusted gross income. If you still have a loss after subtracting 10 percent of your AGI, that loss then flows to your itemized deductions on Schedule A. It can be cumbersome, but can pay off, especially for these larger losses.
If the disaster is in a federally declared disaster area, you have a choice to deduct the loss on the return for the year in which the disaster occurred or on the return for the prior year. This may mean amending the prior-year return and often means quicker refunds.
Having good records will be key to maximizing the loss you are entitled to. Now may be a good time to think about documenting your assets. You may want to consider:
• Making a video tour of your home, especially items of value, and keep it in a safe deposit box. Don’t forget valuable landscaping or built in patio elements.
• Scanning receipts for larger home purchases, repairs and improvements. Keep a copy on a thumb drive in a safe deposit box or use an online backup service.
If you find yourself without some records, IRS Publication 2194, Disaster Resource Guide for Individuals and Businesses, has some great ideas for how to reconstruct lost records.
Lori Shrout, EA, is a manager at Gumbiner Savett Inc., one of the largest CPA and business advisory firms in Southern California. The firm provides strategic financial services including auditing, taxation, transaction due-diligence, litigation support, estate and trusts, business services and general business consulting. For more information, visit http://gscpa.com.