Diminished Value

Today TaxMama® hears from Robert in the TaxQuips Forum, who has this tale of woe. “My car was parked in front of the house and was hit by a hit and run driver. The car had about $10k in damage that my insurance took care of.  I had a professional report done where they took pictures of the vehicle and gave comps of similar vehicles. The report stated that the diminished value of the vehicle was approx. $7,000. I have seen all over the internet that it can be a tax write off, but these are from the sites of the people who do the reporting and get paid for it. I would like an opinion of a tax expert if this in fact a legitimate write-off?”  

 Dear Robert, 

Wow, an accident without you even being involved!

Yes, there is a tax break, sort of. I say ‘sort of’ because it’s a very ungenerous break. You might be able to get a casualty loss deduction on Form 4684. But, before you can use it, you first have to reduce your loss by 

1)10% of your adjusted gross income (the bottom line on page 1 of your Form 1040 long form)

2) $100

and possibly – 3) 2% of your adjusted gross income, for the portion of the vehicle you used for your job (if you did use this car for your job).

So, by the time you get done reducing your casualty loss, there often isn’t enough to bother with. But, try it and see if it works for you.

However, if you used the car for business (not a job) reported on Schedule C, you won’t face any of those limits for the business portion of the loss.

Read IRS Publication 547 for more details on how it works. I hope you end up with a net deduction after all your inconvenience.

And remember, you can find answers to all kinds of questions about casualty losses, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]