A fire is one of the most devastating experiences a family can encounter. The trauma of losing your home is not only emotionally overwhelming; it can also destroy your family financially. The Internal Revenue Service allows you to deduct most of the loss that you incur when a tragedy destroys your home, car or boat. To claim this deduction, you must itemize, which requires you to use Form 1040 and Schedule A to prepare your income taxes.
Itemizing is an alternative to taking the standard deduction, which reduces your adjusted gross income and tax that you owe the IRS. Generally, taxpayers who spend large amounts of income on state and local taxes, medical care, casualty and theft loss, and donations to charity will benefit significantly from itemizing deductions. As of 2012, the standard deduction for a single taxpayer is $5,950, $8,700 for head of household and $11,900 for married taxpayers. If your deductible expenses exceed your standard deduction, itemizing is ideal for your tax situation. For more information on itemizing your deductions, refer to the Schedule A instructions.
To claim a loss on your income taxes, you must first prepare a list of the possessions lost in the fire and determine each item's fair market value. According to the IRS, "the fair market value is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts." For more information on determining an item's fair market value, refer to the IRS Publication 547.
Listing Your Items
When you claim items that you lost in a fire on your income taxes, you must use Form 4684 to report each item's value and determine the amount of your credit. To obtain Form 4684, visit the IRS website at irs.gov. Describe each item lost in "Section A" of the form. If more than four items are included in the loss, use a separate sheet of paper to list the items. Enter the fair market value of each item in the appropriate columns and include any improvements. The IRS also requires that you subtract any insurance payments received from your insurance company.
$100 and 10 Percent Rules
The IRS requires that you subtract an additional $100 from the loss after any insurance payments. This amount is deducted from the total amount, not each individual item. In addition to subtracting $100, you must also subtract 10 percent of your adjusted gross income from your loss. You can find your AGI on the top of the second page of Form 1040. The amount remaining after you subtract those two amounts is the amount of the total income deduction you can take for your loss.
Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.