There are many reasons a loss can occur: car accidents, fires, vandalism, natural disasters and theft can be reported. When these events happen, normally you file a claim with your insurance company.
But what happens if you have to pay more than the insurance company will reimburse you for? This can occur if your vehicle is stolen and your loss turns out be greater than what the carrier is willing to pay to replace it. In this case, you can claim that amount as a tax deduction.
Insurance companies often do not take into consideration whether your vehicle is a collector's item, nor so they take into consideration any upgrades you've made to your vehicle, such as the installation of better wheels, lights, and stereo equipment. Additionally, auto insurance does not cover personal property that has been damaged or stolen while in the vehicle.
To take a tax deduction, you must make a claim to your insurance company for damages regarding your loss and state that you were not at fault when the accident or incident happened. Sometimes people don't report accidents because they think that the accidents are too small and because they don't want their insurance premiums to go up. However, a deduction can only be made if the insurance company was aware of the loss and didn't make full payment for your vehicle.
Use Tax Form 4684 Casualties and Thefts to report the loss on your tax return. If taking a tax deduction, make sure you save your records with a copy of your tax return. Document what happened and the damage, amount of the loss, the records relating to the claim with the insurance company, the amount you were paid on the insurance claim, as well as any receipts you have relating to the additional expenses you paid out of pocket.
Question For Your Attorney
- I didn't report a small accident to my insurance company, can I still claim the losses on Tax Form 4684?
- My insurance company denied my claim, should I file a Tax Form 4684 or appeal the insurance company's decision? Can I do both?