Casualty Loss

[ILLMAS]

One of my client called me to inform me that their apartment was damage by fire from the next door nieghbor house. The building they leave in has insurance so they are going to take care of any damage to the property, however they didn't have any type of rental insurance and many personal items were damage, they filed a claim with the nieghbor insurance, but they haven't recieved any type of compensation or heard from them. My question is should they wait until the insurance company reimburses them for their loss or make the claim in their 2009 tax return regardless of the insurance reimbursment, since the fire happened in Nov. 2009?

Thanks

MAS

[chuck]

The must itemize I assume you know. They must have a substantial loss isn't it > 10% of their income.

[TAXBILLY]

The must itemize I assume you know. They must have a substantial loss isn't it > 10% of their income.

They do NOT have to itemize. The law changed effective 2008.

See Schedule L.

taxbilly

[chuck]

They do NOT have to itemize. The law changed effective 2008.

See Schedule L.

taxbilly

Fire in apt is not a disater loss it's a casualty loss.

[TAXBILLY]

I stand corrected.

taxbilly

[mcb39]

Anyone know offhand how to deal with this when it is a rental? Do I treat it as a business casualty loss or as a rental expense? The insurance reimbursement was several thousand dollars less than the cost of repairs/replacement. I haven't been able to find a clear answer on this. There seem to be special rules for passive activity casualty losses.

[Joel]

Since the client lived in a rental apartment his loss is a personal loss subject to the $500 deduction and then 10% of AGI deduction.

[mcb39]

Since the client lived in a rental apartment his loss is a personal loss subject to the $500 deduction and then 10% of AGI deduction.

NO.....the client doesn't live in the rental apartment, he owns the rental, collects and reports the rent. I am confused as to how to report the difference between the cost of repairs and replacement; which was far less than the insurance reimbursement. I have an idea, but I need backup.

[kcjenkins]

It's a business casualty loss. Might be beneficial to take advantage of the loss now, then report the reimbursement as income, when and if he collects on the claim.

[mcb39]

Thanks KC.....as I said in post #6, he already received the insurance payment, so we already know what his loss is.

I just had some confusion as to whether a passive activity casualty loss was treated differently than a business loss. One of the books mentioned something about having to capitalize it, but they weren't clear and it didn't make sense.