If you have been in an auto accident, you may qualify for a tax deduction. These losses can include property damages and medical expenses. However, there are a number of limits imposed on these deductions, and, in some cases, you might not be able to deduct any of your losses.
These deductions are referred to as “casualty” deductions, which can only be claimed if the event that caused the casualty was “sudden, unexpected, or unusual”. However, you can only deduct out of pocket expenses. Reimbursed funds do not qualify as tax deductions.
Furthermore, you cannot claim a deduction unless you have filed an insurance claim, or if the damage was a result of your own negligent or willful acts.
Property Loss
Most, if not all, car accidents involve property damage. If your insurance policy covered your damages, you have to file an insurance claim before you can claim a tax deduction. Furthermore, you can only claim a deduction equal to the amount your insurance didn’t cover.
To determine the amount of deduction you can claim, you should total out of pocket expenses, and then reduce it by $100. This reduction applies to each casualty event, and not to each piece of property involved in the event. After you have subtracted this amount, you will then further reduce your deduction amount by 10% of your gross income. You can find your gross income on Line 38 of Form 1040. The remaining amount is the total deduction you can claim on your taxes.
Personal Injury
You can deduct any medical or dental expenses not covered by your insurance. Similar to property damage, you must first file an insurance claim before you can claim a deductible on your taxes. Furthermore, you can only deduct the amount not reimbursed to you by your insurance company.
Personal Negligence
You cannot claim a tax deduction for an auto accident that was a result of your own negligence or willful act. For example, if your accident resulted from a DUI, you cannot claim a tax deduction. Furthermore, if someone driving your car with your permission causes an accident willingly, or through their own negligent acts, you cannot claim it as a tax deduction.
How To Report Your Losses
You can report property losses on Form 4684, and on Schedule A on Form 1040. This form will have a column where you can list each item that was damaged. You also report your medical expenses on Schedule A of Form 1040.
How To Prove Your Losses
Typically, you don’t have to provide proof of your losses unless the IRS audits you. In this case, you must prove that you are the lawful owner of the damaged property you are trying to claim. Furthermore, if you have not yet received an insurance settlement for your damaged property, you must notify the IRS of any future reimbursement you anticipate.
If the IRS audits you, you will need to provide proof of legal ownership; receipts proving the original cost of the item (property loss); documents that establish the origin of the damage or injury; proof of an insurance claim; and receipts for any compensation received for the loss.
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