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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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In DEC of 2009 i suffered a windstorm loss of 97K (per 3rd

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In DEC of 2009 i suffered a windstorm loss of 97K (per 3rd party written estimate) to my 380K home.... the insurance company did not want to pay for all the damages so i sued them and receieved 75K in September of 2012. Of the 75K i received, 25K went to Lawyer so I netted 50K. First of all, I am unsure as to wheter I need to amend my 2009 taxes or should I just report the loss in 2012 tax return.... and how would I computate my loss?

LEV :

Hi and welcome to Just Answer!
In most situations - the income is reported in the year when it received - so assuming you deduct your casualty loss on your 2009 tax return - and later in 2012 receive some reimbursement from the insurance company - that is classified as a recovery.


A recovery is a return of an amount you deducted or took a credit for in an earlier year.

LEV :

See for reference IRS publication 525 - www.irs.gov/pub/irs-pdf/p525.pdf - page 22



Enter the total of all other recoveries as other income on Form 1040, line 21. You cannot use Form 1040A or Form 1040EZ.
Because attorney fees are related to taxable income - you may separately deduct as legal expenses related to taxable income - that amount will be deducted on schedule A.

Customer:

I never filed a loss in 2009 because I though the insurance was going to pay for all my damages.... it was not until the beginning of the following year that I realized they were trying to get out of paying for all my damages and thus got a lawyer.

Customer:

Baiscally, I dont have gains - i have losses because I never recovered the full amount of my damages. My main concern is to find out if I should go ahead and amend the tax return in 2009 (where i never even reported a gain/loss because I did not think the insurance was going to not pay) or should I report the loss in 2012 when the realized loss was confirmed that not all my loss would be cover by insurance because I only recieved 75K (of which 25K went to my laywer) so I really only received 50K out of the 97K loss.

LEV :

Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Thus losses occurred in 2009 should be reported on your 2009 tax return.


However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. If you make this choice, the loss is treated as having occurred in the preceding year.

In your case - you need to amend your 2009 tax return - and will be able to deduct casualty loss that was not reimbursed. So - no need to claim the recovery because it was never deducted.


LEV :

In your case - you need to amend your 2009 tax return - and will be able to deduct casualty loss that was not reimbursed. So - no need to claim the recovery because it was never deducted.

LEV :

Be sure - verify with your insurance that they would not report reimbursement as your taxable income to the IRS.

Customer:

Do you know if it is customary for the insurance to report to IRS of payment?

LEV :

Unfortunately - yes - I had many situations when reimbursement is reported while it is not taxable - and taxpayers need to fight that back.

Lev and other Tax Specialists are ready to help you