In the 2011 tax year, I lost my personal vehicle due to an impound. Can I use the loss to offset my tax liability for the year?

ANSWER

The BIDaWIZ Team's Answer:

Personal losses are generally nondeductible under the tax law. However, the law does allow a deduction for personal losses caused by casualty, theft or disaster (section 165(c)). The application of the law to auto accidents is addressed at Treasury Regulation 1.165-7. This regulation provides that the loss associated with an auto accident is a casualty loss as long as the damage is not due to the willful act or willful negligence of you. The amount of the loss is the smaller of the amount you paid for the car or the decrease in the fair market value of the car as a result of the accident, reduced by reimbursements received by insurance. If the accident meets the definition of a casualty then the loss calculated above is claimed as an itemized deduction on Schedule A of Form 1040. The amount of the deduction is limited to the amount of the loss in excess of 10% of adjusted gross income. You will also complete Form 4684.