I totaled my truck in 2017. Would I be able to declare it for any deductions, even though I got an insurance payout that cleared the loan and still gave me some to put down on another truck? Also, with buying a new truck, is there anything I can declare for any other deductions? I don’t know if it matters but I live in Texas.
The loss of property you experienced because of your accident is considered a casualty loss for federal individual income tax purposes. A casualty loss equals the lesser of: the adjusted cost basis of the property before the accident; or the decrease in fair market value of the property as a result of the accident.
Casualty losses may be deductible on your 2017 federal income tax return, but there are several limitations. First, the amount of the loss is reduced by any insurance proceeds received. Second, all casualty losses (after insurance proceeds) are reduced by $100. Last, the casualty loss (after both the insurance proceeds and the $100 reductions) is further reduced by 10 percent of your adjusted gross income.
To illustrate: Let’s assume that you originally bought your truck for $30,000 and it was worth $20,000 at the time of the accident. Let's also assume that the remaining loan on the vehicle was $15,000, that you received $17,000 from the insurance company, and that your adjusted gross income in 2017 was $60,000. For purposes of our discussion, we have also assumed that the truck is not being used in a trade or business.
First, the amount of your casualty loss is determined by the decline in value of the truck measured before and after the accident, using the lesser of the fair market value ($20,000) or the original cost ($30,000). Since you totaled your truck, we are assuming the value after the accident is zero. Therefore, the gross amount of the casualty loss you realized due to your accident would be $20,000, the entire remaining fair market value of the truck.
Because you received $17,000 of insurance proceeds ($15,000 to pay off the purchase loan and $2,000 for a down-payment on a new truck), your loss would first be reduced to $3,000. However, after taking into account both the $100 reduction and the 10 percent of adjusted gross income (AGI) reduction of $6,000 ($60,000 x 10 percent), your net casualty loss would be completely eliminated and no deduction would be allowed for federal tax purposes.
You and your tax preparer will have to run the actual numbers, but in most situations of minor casualties dealing with personal vehicles (thefts, accidents, vandalism, etc.) and where insurance reimbursements make you somewhat whole, it is not likely that you will have a casualty loss significant enough to qualify for a deduction for federal individual income tax purposes.
In response to your second question, the state and local sales tax you paid on the purchase of your new truck may be deductible if you itemize deductions on your federal income tax return. Otherwise, unless your new truck is purchased for use in a trade or business, no additional deductions would be available for a vehicle used for personal purposes.
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Answered by: James G. McGrory, CPA, and Stephanie K. Otake, CPA, are with Drucker & Scaccetti in Philadelphia.