At tax time, you get only limited consolation if your car is damaged or stolen and the loss isn’t covered by insurance. The snag is that there’s a two-step computation for uninsured casualty or theft losses resulting from auto accidents, thefts, fires, or similar events.
Those losses are deductible only if they amount to more than 10 percent of your adjusted gross income. Moreover, no write-off for the first $100 of each casualty or theft loss.
There are other restrictions. For instance, you’re entitled to a deduction for damage from, say, a wreck caused by an icy road or a collision caused by faulty driving on the part of yourself (or someone else operating your car) or the other driver, provided the damage didn’t result from your willful act or willful negligence. “Willfulness” includes drunken driving.
Casualty losses have been denied for tire blowouts caused by overloading and motor damage caused by an oil-line leak, but allowed for damage resulting from a child pressing a starter button and freezing of a motor following an accident.
The US Tax Court agreed with the IRS that no casualty-loss deduction or, for that matter, any write-off at all should be allowed for damages to a person’s lifestyle due to suspension of his or her driver’s license.
Was your car a “lemon” from the day the dealer handed you the key? That, say the courts, doesn’t entitle you to a casualty-loss deduction when you trade it in.
Nevertheless, a bona-fide casualty loss is allowable even under odd circumstances. Take the case of Abraham Hananel, who returned from a visit to friends to discover that the vehicle he’d parked in a tow-away zone had been towed away. Even worse, the city failed to identify the owner and, as authorized by law, crushed the car.
According to the IRS, no deduction should be allowed because Abraham ought to have foreseen the consequences of selecting the particular parking space that he did.
Like the corrupt Vichy French police chief played by Claude Rains in Casablanca, the IRS was shocked – shocked – to find that its peevish reasoning failed to convince the Tax Court, which tartly responded that Abraham could have anticipated that the city might move the car, but not that it would become scrap metal.
In calculating your allowable casualty loss for a personal car, don’t include these items: towing charges, the cost of renting a replacement car, or legal fees to defend against a suit for negligent operation of your vehicle.
The deduction is available only to the owner of the damaged property. Thus, even if you get stuck with the bill, no write-off for damage or destruction of a car registered in your child’s name.
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