/Claiming Loss on Taxes After a Car Accident

Claiming Loss on Taxes After a Car Accident

Accounting at Claiming Loss on Taxes After a Car Accident

A car accident can impact your life in many different ways. Besides the obvious nightmare associated with recovering your health and dealing with your injuries, you may find that the accident has had an impact on your driving record You may also discover that your insurance rates have increased and that your ability to move around and do the things you need to do, such as getting to and from work and to your medical appointments, is impossible without a car.

Another facet of your life that may be affected by the car accident is your taxes. However, the federal tax laws allow you to get some tax relief from a car accident because the damage or loss of your vehicle is considered a casualty loss.

What can be taken into account for tax purposes?

In order to qualify for this itemized deduction when you are preparing your taxes, you will need to take into account:

  • The value of the car.
  • Any monies you recouped from the insurance company or from any other sources.

Qualifying for the Deduction

The damage that your car suffered will qualify for a deduction no matter if it was you driving the car at the time of the accident or if someone else was behind the wheel. It also makes no difference whether it was your fault or someone else’s. What will disqualify the deduction is if the damage is the result of an intentional collision or because someone was driving recklessly.

Reckless driving takes place when whoever was driving your car was either speeding or driving under the influence of alcohol or drugs. To document that the accident was not due to reckless driving, it is important for you to obtain a copy of the accident report from the police. If the accident was reported in the news or a newspaper, get copies of that account as well.

How is the loss calculated for tax purposes?

If your car was damaged in the accident, the loss you take is either the smaller of what you paid for it or the reduction in the vehicle’s value as a result of the accident. If your car was a total loss, the reduction is considered to be the value of the vehicle immediately before the crash.

Using car value guides and appraisals may give you the best estimate of the value of your car. You are also allowed to use the cost of repairs as a basis to measure the decline in the value of the car, providing that the repairs have been carried out and were limited to the areas of the vehicle that were impacted by the accident. These repairs are needed to restore the car to its condition as it was prior to the accident and not to make your car worth more than before the wreck. If you replace your car, the cost of the new one is not considered to determine the loss.

Make Note of Any Reimbursements

If you got or are expecting any reimbursement from either an insurance company or a claim settlement, you must subtract this amount from your total loss. Also, not filing a claim with the insurance in order to use a larger tax deduction from the loss is not allowed by the IRS. You should not avoid dealing with the insurance company just to avoid receiving reimbursement in order to obtain a larger tax deduction.

The law regarding claiming losses after a car accident is quite complex and may be best handled by a lawyer.

(CEO / Editor / Journalist) – Bruno is the owner and CEO of Motorward.com; he’s responsible for the entire team, editorial guidelines and publishing. Bruno has many years of experience in the auto industry, both managing automotive websites and contributing to the press.