Question

Casualty claim for 2018 earthquake

Forum|Forum|6 years ago
January 26, 2020
1 reply
0 views

My residence sustained significant damage as a result of the November 2018 Anchorage, Alaska, earthquake. It was a federally-declared disaster (there is a FEMA disaster number). Working through TurboTax, I'm asked for the fair market value (FMV) of the property immediately before and immediately after the earthquake. I do not have appraisals from before and after the quake. I do have receipts for work that was done to restore (not improve/upgrade) the property.

IRS Publication 547 says the following:

Cost of cleaning up or making repairs. The cost of repairing damaged property isn’t part of a casualty loss. Neither is the cost of cleaning up after a casualty. But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions.
• The repairs are actually made.
• The repairs are necessary to bring the property back to its condition before the casualty.
• The amount spent for repairs isn’t excessive.
• The repairs take care of the damage only.
• The value of the property after the repairs isn’t, due to the repairs, more than the value of the property before the casualty.

I believe I meet all of those requirements. For simplicity sake, let's say it cost me $25K to repair the damage. Can I claim the pre-disaster FMV was $300K, and the post-disaster FMV was $275K? or am I opening myself up to an audit?

RobertG

Yes, based on the facts as stated, you are using a reasonable method to calculate the decrease in FMV caused by the casualty.

Fair Market Value is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.

The theory the IRS is using in Publication 547 is that the cost to return the property back to its condition before the casualty is a good indicator of the decline in Fair Market Value due to the casualty.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"