In Topic 515 on the Internal Revenue Service's website, it discusses the types of losses that can be claimed on your income tax. Diminished value is specifically listed! They call it the "decrease in the fair market value", and you can report this loss to save on your taxes. The decrease can be determined by obtaining a diminished value appraisal by a qualified company or individual, and it can be significant. Sometimes, depending on the situation, even the cost of repair can be utilized to further realize tax savings. There are special rules about taxes that I am not qualified to advise upon, but simply asking your tax professional or doing some diligent research should prove very worthwhile. Most of the time, an individual can find the help they need on the official IRS website.

Know The Rules!

Evaluate your loss carefully. Make sure you realize that the first $100 of a property loss cannot be deducted from your taxes and the total loss on property must be more than 10% of your adjusted gross income.

For example: If you have an adjustable gross income of $50,000 per year, you would have to have a loss of at least $5101 to get even $1.00 deducted from your tax liability or "taxes owed".

Keep in mind that this information is not tax advice, just a re-statement of the rules freely available on the IRS website. You should contact a qualified tax professional if you are having trouble figuring out how to calculate your deduction.

In addition, not just any appraisal will work; any appraisal or diminished value report you obtain will be held to strict standards by the IRS. The method of calculation, competency and knowledge of your appraiser will be evaluated. Make sure you get an adjuster or appraiser that knows what they are doing and is properly qualified when it comes to diminished value claims.

Also, although it seems like common sense, keep in mind that any payment you receive for loss of market value or diminished value cannot be claimed as a tax liability deduction! Small losses in market value are generally not going to reduce your tax liability unless you have no income. If you think you may qualify for tax benefits, be sure to consult a tax professional to help you get your loss properly deducted.

Good luck! Sometimes it's just in the petty details!