Figuring Decrease in FMV
To figure the decrease in fair market value or FMV because of a casualty or theft, you generally need an appraisal. However, there are often measures you can use to establish certain decreases.
The appraisal to determine the difference between the fair market value (FMV) of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser.
If you itemize your deductions, you can deduct the fee as a miscellaneous deduction subject to a limit of 2% of your adjusted gross income (AGI).
Is the appraisal fee tax deductible?
The fee you pay for appraise is not part of the casualty or theft loss. If you itemize your deductions.
Cost of cleanup and repairs
The cost of repairing or cleaning up damaged property can be used as a measure of the decrease in value if:
The repairs are necessary to bring the property back to its condition before the casualty
The amount spent for the repairs is not excessive
The repairs are only to take care of the damaged, and
The repairs do not increase the value of the property to more than its value before the casualty.
The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. You may be able to measure your loss by what you spend on removing destroyed or damaged trees or shrubs, pruning and other means used to preserve the trees and shrubs and replanting needed to restore the property to its approximate value before the casualty.