After the Flood: More Reasons To Keep A Household Inventory

A reprise of tips offered after Hurricane Ernesto

TAX ADVICE from Julian Block

(April 26, 2007) The April 15 nor'easter produced the worst flooding in local memory. The storm caused tens of millions of dollars in damages. More than seven inches of unrelenting rain took out power lines, damaged residences, stores and office buildings and forced several hundred residents in Larchmont, Town of Mamaroneck and Village of Mamaroneck to leave their homes and find shelter at Mamaroneck High School. Natural disasters like the northeaster in April, heavy rain in March and Hurricane Ernesto last year underscore why it is vital to be prepared for the next Big One. As part of that preparation, it's important to keep the kind of records that make it easier to qualify for tax relief when Form 1040 time rolls around.

The tax code authorizes deductions for household damage caused by thefts, vandalism, fires, floods, hurricanes and other kinds of casualties. But the law imposes several restrictions.

Relief is available only for uninsured losses. They must be reduced by any settlements you receive or expect to receive from your homeowner’s or renter’s insurance. Nor do you get any write-off for the first $100 of each theft or casualty loss. The major limitation is that total losses generally are allowable only to the extent they exceed ten percent of adjusted gross income, the amount listed on the last line of the first page of the 1040 form. 

There are other problems for people with hefty deductions that surpass the ten-percent threshold. IRS sleuths learned long ago that most people are unable to substantiate their losses because they neglected to keep adequate records and have to rely on what, at best, are estimates, assuming they are even able to recall, for instance, all those valuable and not-so-valuable belongings stored in their closets. So the ritual response of the feds is to throw out or trim unsupported estimates, a strict approach that has been sustained by the courts in countless decisions. Take, for example, a case in which an unsympathetic United States Tax Court emphasized that it “bears heavily” against taxpayers who base their estimates mostly on recollections, not records.

Nevertheless, an understanding IRS wants to ease the burden for people who fall victim to thefts, casualties, or disasters. The agency offers a free guide available online: Disaster Losses Kit For Individuals. Or call a toll-free number, 800-TAX-FORM (829-3676). (As long as you are doing that, also get Publication 910, Guide to Free Tax Services. It supplies a complete list of IRS booklets, summarizes what they cover, identifies the many materials and services available, and explains how, when, and where to get them. To order current and prior year publications or forms, use the toll-free number.)

The Disaster Losses Kit includes a handy workbook with schedules for listing, among other things, clothing, jewelry and a residence’s contents on a room-by-room basis. Schedules for rooms and other areas have separate sheets for the entrance hall, living room, dining room, kitchen, bedrooms, garage, and other sections. Each sheet lists belongings generally found in a specific area.

As an example, the entrance-hall sheet lists chairs, clocks, draperies, lamps, mirrors, pictures, rugs, tables, umbrella stands and wall fixtures, with plenty of space to enter additional items. Alongside each property item are seven columns in which to record the following details: the number of items; date acquired; cost; value before the loss; value after the loss; decrease in value; and amount deductible as a loss.

Yes, you might never need to calculate deductions for casualty or theft losses. But the Disaster Losses workbook will help you inventory household goods and personal property. That list can prove to be indispensable when, for instance, you want to reconsider the adequacy of your insurance coverage, file insurance claims, plan to move — or even create a household inventory for heirs.

To be sure, it is a disheartening project to list all your possessions, their cost and other information. Still, creating a list in advance is incomparably easier than trying to remember all those details after property is stolen or destroyed. Whether the inventory is a first-time task or an update, it is prudent to keep a copy outside your home in a safe deposit box or some other secure location.

Julian Block lives in Larchmont and is an attorney, syndicated columnist and former IRS investigator who the New York Times has called “a leading tax professional.”

For information about his books, adult ed courses and more articles, go to www.julianblocktaxexpert.com. Copyright 2007 Julian Block. All rights reserved.