How do I claim fire-damage losses on my taxes?

Dear Liz: My home in Pacific Palisades is still standing after January’s fire, but was damaged by smoke and ash. The remediators deemed hundreds of personal property items unsalvageable. Our insurance company is paying us a highly depreciated amount for these items, with the full amount to be received upon the actual purchase of each replacement.

Since we won’t replace every item, we’ll end up with a sizable loss, which I understand can be claimed on our 2024 or 2025 tax return. I’m concerned that we won’t know the total amount of loss by the end of 2025. Could you please discuss how to handle this?

Answer: Casualty losses are deductible in the year you sustained the loss. That’s typically the year the loss occurred, although you may be able to deduct the loss in the previous tax year when it’s part of a federally declared disaster, such as the January 2025 wildfires in Los Angeles, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

However, you aren’t considered to have sustained a loss if there remains a reasonable prospect of recovery through a claim for reimbursement, Luscombe says. You can’t take the deduction until the tax year in which you can determine with reasonable certainty whether or not you will receive such reimbursement.

If you won’t know the amount of the loss by the end of 2025 due to this uncertainty, you can wait to deduct the loss until the year in which the amount of reimbursement is known, Luscombe says.

For personal use property, the deductible loss is the lesser of the adjusted basis of the property (typically its cost) or the decrease in the fair market value of the property as a result of the casualty (which may be determined by an appraisal or the cost of repairing the property), Luscombe says.

Dear Liz: You recently answered a question about the consequences of giving up a timeshare. What are the possible consequences if a timeshare is held until the owner’s death? What is the effect if it is included in a will or trust? If none of the potential heirs want it, what is the effect of not mentioning it in the will or trust? Can the company sue the prospective inheritors even if it were to go into default? What I’m struggling to get at is what are the best options for handling it, depending on the desire of the prospective inheritors?

Answer: Timeshares typically have “in perpetuity” clauses that require owners to pay maintenance fees for life, and the requirement passes to anyone who inherits the timeshare.

Fortunately, no one is forced to accept such an inheritance. Potential heirs can “disclaim” or refuse to accept the timeshare after your death.

How your heirs go about this depends on the type of timeshare. If the timeshare includes a real estate deed, or if it’s specifically mentioned in your will or trust, then your heirs may need to file a written disclaimer with the probate court. If the timeshare was sold as a “right to use” contract, which is more common these days, the heirs can have the executor contact the resort to tell them the owner has died, so the resort can start the process of taking the timeshare back.

This all assumes that you haven’t already added the heirs’ names to the timeshare deed, if one exists. Sometimes, timeshare salespeople promote this option as a “convenience,” which it is — to the timeshare company, because it can hold the heirs responsible for the fees, whether they want the timeshare or not. To fix this, you can ask the resort developer to remove the additional names from the deed. If the developer balks, consider contacting an attorney.

Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.