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I have the dubious distincting of being in an area that saw both Katrina and Wilma last year. Katrina wasn't too bad when it hit Fort Lauderdale, but Wilma packed a mean punch. We had damage to one of our cars, and some damage to our townhouse. Screens were damaged, water blew around/through most of our windows (one was cracked), and as a result, some water damage to our wood floors. Now I'm trying to understand how to handle these casualty losses in preparing our tax return.

The car was covered by insurance, less a $500 deductible. This I understand can be claimed as a casualty loss, following an example in IRS Pub. 547.

The house is a bit more complicated. Insurance completely rejected our claim. Windows and screens aren't covered by our "condo" policy, yet our condo docs clearly state that those are our responsibility. The insurance company also rejected our claim for the floor damage (the adjuster foretold this when he came to handle our claim), saying the damage wasn't enough warrant replacement "at this time". I can document the floor damage with pictures showing darkening at the seams as well as swelling/lifting suggesting delamination of the layered plies.

As a result, we are in the process of obtaining estimates for window replacement, patio screen replacement, and wood flooring. All of this is very slow, as contractors are backed up for months with a backlog of work. We have every intention of doing the window and screen replacments ASAP, but we don't expect to have the money to mess with the floor right now. (Fortunately, everything dried out quickly and there are no mold issues to be concerned with.)

The question is, how do we go from these damages and estimates to determining a figure for my casualty loss. The IRS publications I have looked at talk about determining the change in FMV based on the damage. Obviously, my FMV has been affected, but quantifying that is difficult. The IRS suggets the possibility of getting an appraisal, but I don't have a "before" appraisal to compare to, even if I paid to have one done today.

The IRS also mentions the possibility of using repair estimates to approximate the FMV loss, but they say this is not always accurate. For example, the windows we put in might be higher quality than the old windows. If that increases the home value above the pre-damage value, the cost is not valid for establishing FMV loss. How is a mere mortal supposed to make these determinations?

One publication on casualty loss says that you can't use an estimate to approximate FMV loss if you don't make the repair. In the case of our floor, we're not doing it now, simply because we can't afford to. That doesn't negate the loss in FMV, it just means we have to live with it until we can do something about it. If I tried to sell the place tomorrow, a buyer would want to back off the cost of replacing the damaged flooring. That sound like I should be able to claim something as a loss, I just don't know what.

The window replacements also put us in an odd spot. One window was cracked, obviously from the storm. The others bowed from the wind pressure and leaked through the seams and tracks (these are horizontal sliders). I don't know if this problem existed before the storm, or was caused by the winds and flexing of the windows. It certainly never was an issue before the hurricane. Can I simply call the windows "damaged" and needing replacement because they no longer do their job of keeping the elements outside? Or, am I pushing things even thinking about deducting their replacement cost?

By my reading of the IRS guidelines, any damage that, if disclosed, affects the value of the house, can be taken as a casualty loss. The knowledge that the windows don't keep water out, if disclosed, has a real impact on the FMV of my home. By this logic, I think the windows should qualify for something.

Beyond our own damages, the building exterior sustained signficant damage to roof. Many tiles were broken or blown away, several landing on our car. We face a potentially significant loss assessment from the condo association to cover the cost of roof repairs. When that happens, would that also be deductible as a casualty loss? Or would the roof damage factor into my FMV loss on the value of my condo today (do I own a share of the roof?) How would one go about figuring this out?

This is not an insignificant amount of money we're talking about here, either. The total for our repairs and the assessment could easily total $20-$25k. I'd be very interested to hear what others would do in this situation.

One last thing....I understand there were some automatic deadline extensions granted for filings earlier this year. Is there anything automatically in place extending the April 15 personal filing deadline, or do I need to file my own extension if I need more time to determine my casualty losses?

Thanks in advance,

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