Navigating deductions: Does loss of principal dwelling qualify for tax break?

Written by  //  March 13, 2012  //  Biz Views  //  No comments

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Author Janisse Frometa is a member of the Puerto Rico Society of CPA’s Taxation Committee

Editor’s Note: This article is the first in a series offering helpful tips to navigate this year’s tax return filing process, considering the many changes brought on by the government’s Tax Reform.

A tax return deduction is allowed for an unforeseen loss of the taxpayer’s principal residence incurred during the taxable year. This article will focus on the loss of the real property.

I lost my principal residence. Do I qualify for this deduction?

The loss of the principal residence must have been caused by one of the following:

•          Fire
•          Hurricane
•          Earthquake
•          Storm
•          Tropical Depression
•          Floods
•          Other fortuitous causes

The allowed loss, for purposes of this deduction, would be the loss of the property net of any insurance compensation. If after claiming the deduction the individual receives compensation from an insurance company or any federal or state agency, it will be necessary to include the amount received as part of the taxpayer’s taxable gross income in the year it was received.

How do I apply for that deduction?
If the taxpayer qualifies for this deduction, then he/she must submit a copy of the cancelled checks, receipts, documents and certifications that serve as evidence of the claimed amount, along with their tax return.

The Puerto Rico Treasury Department (Hacienda) refers to “documents” as any writings or assessments that reflect the value of the property subject to loss and certifications from the Civil Defense or Fire Department.

It is imperative that the qualifying taxpayer retains copies of this evidence for a minimum of six years. In the event that the taxpayer’s tax return is investigated, submission of this evidence will be necessary.

Are there any limits on the deduction?
To date, no limitation has been imposed on the amount of the deduction for the loss of the principal residence of the taxpayer, other than the amounts already covered by insurance or governmental agencies.

In the case of spouses filing separately or electing for the optional computation (Schedule CO), each spouse will have the right to claim only 50 percent of the deduction.

For detailed information about a loss of personal property, please refer to section 1033.15(a)(10)(B) of the New Puerto Rico Internal Revenue Code.

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