Under certain circumstances, the Internal Revenue Service will allow an income tax deduction for lost or damaged items not covered by insurance. (This can be a business or a personal loss.) The allowable deduction for a casualty loss is the least of: (1) the fair market value at the time of loss or the decrease in FMV at the time of loss, or (2) the original cost or cost basis. The original cost, in most instances, is difficult to determine, particularly if there are no records or the item was inherited or a given as a gift. In most situations, the IRS will accept the former.
The loss must exceed 10% of the claimant’s adjusted gross income (i.e. the loss must exceed $10,000 if the income is $100,000). Therefore, if the loss is $15,000, only a $5,000 value would be deductible. If it is a personal loss opposed to a business loss, there is a $100 deductible. The FMV is determined on the date of loss. The casualty loss report should be performed by a credentialed appraiser, accustomed to providing appraisals for the IRS.
Cos Altobelli, is a third generation jeweler and president of Altobelli Jewelers in Burbank, previously located in North Hollywood for 60 years. His specialty is appraising for all functions and acting as an expert witness. He holds a graduate degree from the Gemological Institute of America and the title of Certified Gemologist Appraiser, from the American Gem Society, is the author of three appraisal books, and has appeared on “Prime Time Live” several times. Mr. Altobelli can be reached at (818) 763-5151.