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Lev
Lev, Tax Advisor
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Can I claim any casualty loss on my 2008 taxes for a home under

Customer Question

Can I claim any casualty loss on my 2008 taxes for a home under construction that was damaged by IKE? I own the land outright ($150K). Was building a primary residence. $790,000 for the total estimated construction. Had $220,000 already into the build. (framing and piers materials and labor). IKE hit and took most of it down. Insurance only looking to pay $70,000. I don't own this construction outright...so can I claim casualty loss? I am paying interest on the $220,000 of the construction loan. And the land is probably less value due to the semi construction.

I should add that I currently reside and am a resident of Houston TX. Once build is final, will move.

Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

Can I claim any casualty loss on my 2008 taxes for a home under construction that was damaged by IKE? I own the land outright ($150K). Was building a primary residence. $790,000 for the total estimated construction. Had $220,000 already into the build. (framing and piers materials and labor). IKE hit and took most of it down. Insurance only looking to pay $70,000. I don't own this construction outright...so can I claim casualty loss? I am paying interest on the $220,000 of the construction loan. And the land is probably less value due to the semi construction.

I should add that I currently reside and am a resident of Houston TX. Once build is final, will move.

 

Yes - you may deduct casualty loss.

Your casualty loss is a difference between FMV before and after IKE.

You should adjust the loss by insurance reimbursements.

If FMV before the casualty was $220,000 and the FMV after the casualty - $150,000 (the value of the land - your casualty is $70,000. If insurance will reimburse you with $70,000 - there will not be any unreimbursed losses.

 

Please let me know if you need help with reporting.

 

Customer: replied 5 years ago.

Thanks for the reply, however, let me confirm something.

 

The $220,000 I referenced above...does not include the price of the land. That was only money spent on the construction of the building on the land. So the FMV or this total project to investment date would be $220,000 (construction expense to date) plus the $150,000 (value of the land) or $370,000 total.

 

Does that mean I could take $370,000(total land and construction expense to date)- $70,000 (insurance)? or $300,000?

 

 

Customer: replied 5 years ago.

Just to add.

 

The land was not damaged by the storm. However, the construction on it was.

 

If I were to shut down this project today, it would be hard to sell the land w/ the semi constructed building on it. Most likely, I would have to pick up the expense for tearing down and removing the construction.

 

I plan on moving forward. So again, what can I claim and where do I learn about how to do it? Are there specific tax people I should seek out for help?

 

 

 

Expert:  Lev replied 5 years ago.

To evaluate the casualty loss - we need to know the FMV before and after casualty.

Please be aware - that is not replacement cost for insurance purposes.

If you spent $220,000 in construction expenses - it i s possible that the FMV would be close to that number - but it may be more or less as well.

According to the IRS - fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.

In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. These include:

  • The cost or selling price of the item,

  • Sales of comparable properties,

  • Replacement cost, and

  • Opinions of experts.

This is not to say that a valuation is only guesswork. You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity.

So if FMV of the property before casualty was $220,000 and after casualty - zero - your loss is $220,000. As $70,000 were reimbursed - your deductible casualty loss is $150,000.

Now - you said that the land was not damaged by the storm - I do not think that is correct because you had to clean the land before starting a new construction. So FMV of the land was lower because (1)all areas around was damages (2)there was additional cost to clean debris.

 

See for details the IRS publication 547, Casualties, Disasters, and Thefts - http://www.irs.gov/pub/irs-pdf/p547.pdf

 

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return.

You may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A .

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