California Wildfire Victims: Insured vs. Uninsured Losses

Uninsured Losses

Uninsured disaster victims can use the Federal Emergency Management Agency (FEMA) appraisal of their loss to document their tax loss. No loss can be taken until reimbursement claims have been settled. The measure of the loss is the lesser of the decline in fair-market value or adjusted basis, not replacement cost.

The IRS and the California Franchise Tax Board will allow victims to receive additional and immediate tax refunds this year by immediately reporting their disaster losses through amended 2006 returns.

Insured Losses

Insured disaster victims often value their personal property at replacement cost because that is the number insurance companies often use. While the IRS will want to limit the value to thrift store values, the courts have allowed taxpayers to rebut that assumption and prevail.

Insured disaster victims may have an economic loss if their insurance companies won't settle with them for the replacement cost of their real and personal property. They generally don't have a tax loss because the depreciated value of their contents is less than their insurance settlement proceeds. Policy reformation is possible and disaster victims should work with organizations such as CARE and United Policy Holders to ensure a fair settlement.

You can go to http://www.exeter1031.com/income_tax_relief_for_victims_wild_fires.aspx for more complete details regarding tax relief for the California Wildfires.