18.8 Proving a Casualty Loss

If your return is audited, you will have to prove that the casualty occurred and the amount of the loss. The time to collect your evidence is as soon after the casualty as possible. Table 18-1, Proving a Casualty Loss, indicates the information that you will need when computing your loss (18.13).

Table 18-1 Proving a Casualty Loss

To prove— You need this information—
That a casualty actually occurred With a well-known casualty, like regional floods, you will have no difficulty proving the casualty occurred, but you must prove it affected your property. Photographs of the area, before and after, and newspaper stories placing the damage in your neighborhood are helpful.
If only your property is damaged, there may be a newspaper item on it. Some papers list all the fire alarms answered the previous day. Police, fire, and other municipal departments may have reports on the casualty.
The cost of repairing the property Cost of repairs is allowed as a measure of loss of repairing the value if it is not excessive and the repair merely restored your property to its condition immediately before the casualty. Save cancelled checks, bills, receipts, and vouchers for expenses of clearing debris and restoring the property to its condition before the casualty.
The value immediately before and after the casualty Appraisals by a competent expert are important. Get them in writing—in the form of an affidavit, deposition, estimate, appraisal, etc. The expert—an appraiser, engineer, or architect—should be qualified to judge local values. Any records of offers to buy your property, either before or after the casualty, are helpful. Automobile “blue books” may be used as guides in fixing the value of a car. But an amount offered for your car as a trade-in on a new car is not usually an acceptable measure of value.
Cost or other basis of your property—the deductible loss cannot be more than that A deed, contract, bill of sale, or other document probably shows your original cost. Bills, receipts, and cancelled checks probably show the cost of improvements. One court refused to allow a deduction because an owner failed to prove the original cost of a destroyed house and its value before the fire. In another case, estimates were allowed where a fire destroyed records of cost. A court held that the homeowner could not be expected to prove cost by documents lost in the fire that destroyed her property. She made inventories after the fire and again at a later date. Her reliance on memory to establish cost, even though inflated, was no bar to the deduction. The court estimated the market value based on her inventories. If you acquired the property by gift or inheritance, you must establish an adjusted basis in the property from records of the donor or the executor of the estate; see 5.17 and 5.18.
..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset
18.118.164.164