Auto Accident: Tax Deductible Loss

If your vehicle was stolen or in an accident and your loss is greater than what the insurance company is willing to pay you, what can you do? You're not going to get more money out of the insurance company, but you might be able to take the amount of the loss that wasn't reimbursed under your insurance policy and claim it as a tax deduction.

As long as the cause of the accident wasn't your willful or reckless behavior, you can take the tax deduction. However, you can only take a tax deduction for the loss if you submitted the claim to the insurance company. Sometimes people avoid reporting an accident to their insurer to keep their insurance premiums from going up. If this was the case, then you cannot claim the loss on your tax return. You can only claim a deduction for a loss if the insurance company was aware of the loss, and didn't not make full payment on the loss.

There are several reasons why the insurance company might not have made full payment on your losses. They could have not taken into account the above-average condition of your car, its value as a collector's item, or certain items inside the car. Generally speaking, insurance companies don't pay for stereos, phones, some types of upgraded equipment or personal items that were in the car and were stolen or damaged.

Tax Form 4684 Casualties and Thefts is the form you will use to report the loss on your tax return. Losses due to car accidents, fires, vandalism, natural disasters and theft can be reported. If taking a tax deduction, make sure you save your records with a copy of your tax return. Document the amount of the loss, the records relating to the claim with the insurance company, and the amount you were paid on the insurance claim. Also write up a description of what happened and what the damage was.

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