Welcome Guest. Register Now!  


Itemized Deductions Schedule-A


Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-26-2008, 03:41 PM
Junior Member
 
Join Date: Mar 2008
Posts: 3
complex casualty loss deductions strategies

My personal art collection worth $1,000,000 was totally destroyed in an accident. The cost basis was also $1,000,000. This is a deductible casualty loss. I am in litigation against the insurance company and the liable parties. The recovery will be determined by the court in 2011 or later. I expect the recovery to be less than $1,000,000, but more precise estimate of the amount is up to me and my litigation attorney – and here we have choices.
What would be the best multi-year tax strategy?
1. Estimate the recovery at $0 (pessimistic), carry the loss forward several years;
2. Estimate the recovery at $800,000 (optimistic) and likely lower that expectation with every passing year, deduct accordingly – no carryovers;
3. Estimate the recovery at $500,000 (mid-way), carry forward one year, then lower the estimate if applicable, deduct and carry forward again.
Here are the rest of the data (assume all the figures to be the same for 2007 and the next several years): yearly income (wages) $300,000, state tax $20,000 (New York), mortgage interest $50,000, property taxes $10,000.
Essentially, in case 1 I take the $1,000,000 loss in 2007 and carry it forward to 2008 and 2009 (carry back is not beneficial for sure); in case 2 I take $200,000 every year 2007-2011 as the recovery expectations gradually diminish; in case 3 I carry forward from 2007 to 2008, then deduct another loss in 2009 and carry it over to 2010.
In every carryover year all benefits of other deductions (and exemptions: married filing jointly with one dependent) – total $80,000 or more each year – are lost. On the other hand if I deduct loss in increments it is reduced by 10% of AGI each time. There may be other factors influencing the total multi-year tax in each of the three scenarios. What are these factors? Which of the three approaches shall I take? Or is there a forth better way?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
529 Plan Strategies as time near's for your child to attend college! TaxGuru Education Planning 0 12-02-2007 01:13 PM
What are Tax-Efficient Investment Strategies? Andreas Investment Strategy 1 07-31-2007 05:03 PM
Are 529 Plans the best education planning strategies and most tax efficient? InTheWindyCity Education Planning 1 07-13-2007 11:24 AM
What are some of the strategies that would improve the success of my new business? Sabby Sole-Proprietorship 0 05-23-2007 01:36 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning