Casualty Loss Help

[Grace]

Taxpayer purchased property to renovate and either re-sell or live in.

The property was considerably damaged in hurricane. A Federally Declared Disasater Area.

There was no insurance on the property and taxpayer was unable to get FEMA assistance due to the fact that this was not his main home/principal residence.

Town is now in the process of garnering additional funds from government to assist those folks who lost property and received no help. No word on this yet.

Since taxpayer only has until April 17 to either amend prior year or file current year with loss I want to be sure to adequately address this and assist taxpayer in making a decision.

Would I be correct in classifying this property as an "investment" property?

What about this "potential" reimbursement? If there is one, just pick it up in income in the year the reimbursement comes in?

Thanks in advance for any assistance/input...

Grace

[erchess]

My two cents

If he files it as a business or personal casualty there's no problem if he gets a reimbursement in the future, you simply tax him on that reimbursement.

You don't begin to give enough data for me to advise you on when to claim the casualty. I believe you're correct about his having to fish or cut bait on that issue in the near future.

I hate it when this happens but the client has been honest with you and hurt himself. Since you know he bought the property without making up his mind which of two uses to make of it you have to tread carefully. You have to be sure you treat it whichever way is worst for him tax wise. You can give him the knowledge to tell a different story to someone else, conceivably even someone else in your company if there is any such, but if you do the return it has to be as if he intended to make personal use of the property and never contemplated investment use.

[taxea]

I agree with Erchess...creating an investment property after the fact is not proper. Casualty losses on a second home is the way to go. Since there is not inkling that any reimbursements are pending then take the loss and declare the income if it appears at a later time.

[Grace]

Thanks erchess and taxea

Your replies helped me think this out. I felt pressured by deadlines and I froze.

I have to find out why there was no insurance. Maybe insurance company wouldn't insure it 'cuz he told him that it wasn't going to be his personal property. And, FEMA wouldn't help for the same reason. He was honest and paid the price. [Of course, you don't want to commit insurance fraud or lie to a federal agency]. Now if I make it "personal" versus "investment/business", it seems like he gets penalized again. I'll have to give this more thought..maybe see what documentation he has to support the insurance company's decision on the property and/or FEMAs. If it states that "since it was not personal property, no insurance or FEMA assistance" then this could be used to back up a return with a position that it was "investment/business" and not "personal."

I'll get the facts and see where they lead...

Grace