Most American taxpayers think that they will get a tax write-off if they experience a financial loss but this isn’t always the case. Well know Hollywood stars, Matthew Broderick and Sarah Jessica Parker, sold their lovely New York townhouse for $750,000 cheaper than what they originally paid for it. That is a huge financial loss that will not benefit them with a tax break. Many homeowners discover when selling their personal residences, that just because you sell your home for cheaper than what you got it for, you are most likely not going to be rewarded with a glorious tax write-off.
[Read: Know More: Best and Worst States for Income Tax]
If you sell your personal residence at a lower price, you are not saved from being a struggling taxpayer. Join us as we discover three more scenarios where tax laws do not allow you to reclaim the total amount you lost on your return.
1. Money Losses Pertaining to Unfortunate Events
Thanks to tax laws, you can deduct theft, casualty and disaster losses when it comes to your home, household items and any vehicles you own. If you have insurance, you are prohibited from deducting any money losses that your insurance coverage may reimburse you. Losses that you can deduct that are associated with things you own are damages from floods, tornadoes, fires, hurricanes, earthquakes, any other type of natural disaster and any criminal activity that could take place. If you live somewhere that a natural disaster commonly occurs, this is a good factor when you have to claim for a loss.
When you try to claim a loss, the process is a little more difficult than you would think. If your loss is below a specific amount of money, then you cannot claim it. There is a problem when claiming a loss though. If the damage of the first loss is less than $100 worth, you cannot take a tax loss. Along with this, you must deduct ten percent from your deducted gross income and only then will you be able to deduct it from your return.
To sum up what this means; you probably will not be able to add a casualty loss amount on your tax return if your income is high enough or if you use standard deduction regularly. If you do get to claim some sort of deduction, it will probably just be a fraction of your out-of-pocket loss.
2. Experience Capital Losses at a Certain Amount on Investments
There are certain rules when claiming a capital loss on investments. Claiming a capital loss on investments will be more likely to understand than people who are trying to cover real estate for personal reasons. When it comes to the amount of capital losses that you can use to balance out the capital gains you may have, it is limitless. There is a certain limit however on how many capital losses that are investment-related that can be claimed against income that is regular in any specific year.
Every year, you are allowed to use about $3,000 in capital losses when balancing out any other type of income. These include wages, tips, salaries and interest. You can carry over your unused amount later if your damages are greater in capital losses but you must wait several years until you can claim these items on your tax return. More times than not, taxpayers get to utilize all of their losses they experience eventually. If you have unused losses, they will go away when you die meaning that your heir is left with a tax break you cannot use.
3. Gambling Losses
If you receive money while gambling due to winning, whether it is at a casino, or through the lottery, your winnings can be used on your taxable income. Believe it or not, some people think that they should be giving the option to use the money they lose while gambling, to receive a write-off of some sort.
The tax law, usually, does not allow you to use gambling losses unless it is to balance out any winnings. Any gambling losses that are accepted only qualify as an itemized deduction just as we saw with casualty losses. Though, if you regularly partake in the standard deduction, you will not be able to benefit from any losses you experience while gambling even if you qualify to claim some of them.
[Read: What If You Default On Your Loans?]
Any type of a loss is never a fun thing to deal with, but sometimes you will receive a tax break because of these losses. Although in the cases that someone is eligible to receive a tax break on their return, the IRS amplifies to your grieving by denying you the right to receive a tax benefit due to your financial suffering.