In recent years, natural disasters such as earthquakes, typhoons, and heavy rains have been occurring frequently across the country. The "Casualty Loss Deduction" is a system that can reduce the tax burden when you suffer damage. This article provides a practical explanation of the types of disasters covered by the casualty loss deduction, calculation methods, tax return procedures, and required documents.
What Is the Casualty Loss Deduction?
The casualty loss deduction is one of the income deductions, a system that allows you to claim a certain deduction on your tax return if your assets have been damaged by a disaster, theft, or embezzlement. Depending on the amount of damage, the deduction can be carried forward for up to three years.
What Disasters and Damages Are Covered by the Casualty Loss Deduction?
Theft
Covered cases include car theft in a parking lot, pickpocketing, and unauthorized withdrawal from a bank passbook. Loss of cash kept at home or losses where the time of loss is unknown are not covered.
Embezzlement
Cases that constitute embezzlement under tax law and are criminal offenses under the Penal Code are covered. Fraud and extortion do not qualify for the casualty loss deduction.
Natural Disasters
Covered expenses include repair costs for flooding caused by typhoons or heavy rain, snow removal costs, and snow-clearing related expenses. This also includes the cost of a shovel purchased for snow removal and meal expenses for snow removal workers.
Man-Made Disasters Such as Fire and Explosions
Fires and explosions are covered. However, asbestos removal costs are not included.
Pest Damage
Termite extermination costs are covered, but preventive costs to prevent damage are not.
What Are the Two Calculation Methods for the Casualty Loss Deduction?
The larger of the following two amounts is applied as the casualty loss deduction.
- Net Loss Amount − 10% of Total Income, etc.
- Disaster-Related Expenses from the Net Loss Amount − ¥50,000
The net loss amount is calculated as "Amount of Damage + Disaster-Related Expenses − Insurance Reimbursements, etc."
How to Claim the Casualty Loss Deduction on Your Tax Return?
Required Documents
- For theft: Damage report certificate from the police station
- For fire: Certificate from the fire department
- For disasters: Receipts showing the amount of expenditure, disaster damage certificate
Filing Method
Fill in the cause of damage, date of damage, type of asset, amount of damage, etc. in the "Casualty Loss Deduction Details" section on the second page of the tax return form. Using e-Tax allows you to file online from home, and the Tax Return Preparation Corner lets you complete your return without accounting software.
Extension of Filing Deadline for Disaster Victims
In the event of a disaster, two measures are available: "regional extension" and "extension by individual application." With an individual application, filing and payment are possible within two months of the disaster.
How Much Can the Casualty Loss Deduction Reduce Your Tax Burden?
In a case with an annual income of ¥5 million, disaster damage of ¥40 million, related expenses of ¥10 million, and insurance payouts of ¥30 million, the casualty loss deduction amount would be ¥19.5 million. Since taxable income is significantly reduced, the tax burden is reduced for both income tax and resident tax.
Frequently Asked Questions (FAQ)
Q. Can I use both the casualty loss deduction and the disaster tax relief?
A. No. You can only choose one or the other. If the damage amount is large, the casualty loss deduction, which allows for a carryforward deduction, is more advantageous.
Q. Can I still file after the tax return deadline?
A. For the casualty loss deduction only, you can file a tax return at any time within five years from the year following the eligible year.
Q. Can I file from my smartphone?
A. Yes. The National Tax Agency's Tax Return Preparation Corner is smartphone-compatible and allows you to file income deductions, including the casualty loss deduction.
