CLAIMING CASUALTY
LOSSES FOR HURRICANES, ICE STORMS, ETC. DAMAGE
Taxpayers who experience major personal casualties may be
able to recoup some of their losses through tax savings. An itemized deduction may be available for personal losses
from storms, such as recent hurricanes, and other
casualties such as fire, car accidents, and similar
"sudden, unexpected, or unusual" events.
Losses from theft are included as well.
The
deduction is only available for physical damage or loss to
your property. The
loss is not always the decline in economic value you
suffer. The
loss is measured as the lesser of the drop in value of the
property or your basis (usually the cost) in the property.
For example, a piece of artwork you bought for $500
was worth $3,000 before the storm hit.
It was damaged by the storm and now is worth only
$1,000. For
casualty loss purposes, your loss is only $500 even though
the economic loss was $2,000 ($3,000 - $1,000), because
the lesser of your cost ($500) and drop in value ($2,000)
is used. It
can be difficult to establish these elements.
If you have your original receipt, you can show
your cost. In
some cases, appraisals will be needed to establish pre-
and post-loss values. Sometimes, repair costs can be used
as a measure of drop in value but the repairs must
actually be made.
Contrary
to rumors I have heard, you cannot get each tree, storage
shed, in ground pool, etc. at your house appraised
separately before and after the storm.
The entire piece of real estate is considered one item and
the decline in the value of the entire property must be
determined.
Next,
the loss figure is reduced by three amounts.
In many cases, these reductions result in no
deduction being available.
First, you must reduce your loss by any insurance
reimbursements. You
shouldn't fail to file an insurance claim in the hope of
increasing your deduction.
In this event, the IRS will reduce your loss by the
insurance reimbursement you could have received.
Next, for each casualty, you must reduce
your loss amount by $100.
Note that this reduction is per "event,"
and not per item damaged.
Any damage done by a hurricane (but each hurricane
is a separate event) counts as one "event", even
though you may have had many different items damaged.
Third, after combining all your losses under the
above guidelines, you must reduce them by 10% of adjusted
gross income (AGI). Only
the loss amount above this "floor" can be
deducted. This final limitation is often the one that
wipes out the deduction.
For example, if your AGI is $75,000, your losses
(determined as described above) are only deductible to the
extent they exceed $7,500 (10% of $75,000).
Once
you have determined that you have a deductible casualty
loss, you may elect to take your loss against your prior
year's taxable income by filing an amended return for that
year. This is
a special allowance for people suffering losses in areas
designated as disaster areas by the President.
This may increase the tax savings from the losses
you suffered from recent hurricanes and may entitle you to
a refund earlier than if you waited to file the loss on
your return. Casualty
losses in areas not designated as disaster areas must be
filed in the year that the loss occurred.
Benefit
payments from programs of Charities, governments and
employer plans to pay or reimburse unreimbursed (by
insurance or other sources) reasonable and necessary
medical, temporary housing, or transportation expenses
they incur as a result of a casualty are not
taxable. See Revenue Ruling 2003-12 for more
details.
IRS
Revenue Ruling 2003-12, regarding flood losses
IRS
News Release 99-74 regarding Hurricane Floyd
IRS
News Release 99-75 regarding Hurricane Floyd
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