In general, people can claim casualty losses, like damages or losses from hurricanes, floods, fire, earthquakes or volcanoes on their federal income tax returns – provided they can’t reduce the loss with a reimbursement of any kind.
The IRS is also providing immediate tax relief to certain areas based on damage assessments by FEMA. The tax relief being offered will allow businesses and individuals to postpone tax filing and tax payments to October 31, 2011 (extension from the September 15th deadline). The tax relief will also allows individuals and businesses that received extensions on 2010 returns (that were due on September 15th) to postpone filing until October 17th, 2011.
Immediate Tax Relief Available From IRS
Areas in Which the IRS is Offering Tax Relief
As of September 7th, 2011, based on the assessments of FEMA, the IRS is offering tax relief to the following areas that were impacted by Hurricane Irene.
- Connecticut: Fairfield, Hartford, Lichfield, Middlesex, New Haven, New London, Tolland and Windham
- Massachusetts: Bershire and Franklin
- New Jersey: Atlantic, Bergen, Burlington, camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercener, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren
- New York: Albany, Clinton, Delaware, Dutchess, Essex, Greene, Montgomery, Nassau, Orange, Otsego, Renssalear, Rockland, Saratoga, Schenectady, Schoharie, Suffold, Ulster, Warren and Westchester
- North Carolina: Beaufort, Bertie, Brunswick, Camden, Carteret, Chowan, Craven, Currituck, Dare, Duplin, Edgecombe, Gates, Greene, Halifax, Hertford, Hyde, Johnston, Jones, Lenoir, Martin, Nash, New Hanover, Northampton, Onslow, Pamlico, Pasquotank, Perquimans, Pitt, Tyrrell, Vance, Warren, Washington and Wilson
- Puerto Rico: Arroyo, Aguas Buenas, Caguas, Canovanas, Carolina, Cayey, Cidra, Coamo, Comerio, Humacao, Jayuya, Juncos, Loiza, Luquillo, Orocovis, Patillas, Ponce and San Juan
- Vermont: Addison, Bennington, Caledonia, Chittenden, Orange, Rutland, Washington and Windsor
Tax Deductions Available at Tax Time
Calculating Tax Deduction for Casualty Loss
If your home or other personal property is still usable to some degree, you can claim the casualty loss up to the amount of your property’s adjusted basis or the decrease in the fair market value of your property which was caused by the casualty – whichever loss is less. Calculate the adjusted basis of property by starting with your property cost, and then adding or decreasing improvements and depreciation. IRS Publication 551, gives more detail about the basis of property calculations.
If you need to take a tax deduction for casualty loss to income-producing properties or business properties that are completely destroyed, you can deduct the your property’s adjusted basis value if it is more than the fair market value of the property before the casualty happened.
For both personal property and business property, you must reduce the amount of your loss calculation by any reimbursement or insurance money you expect to receive for the same loss.
How to Claim Tax Deductions after Hurricane Irene
Losses from hurricanes and other casualties are usually deductible within the same tax year they took place. Use Form 1040 Scheduled A to file any casualty losses. You must itemize your tax return in order to claim tax deductions after a hurricane. If you are a nonresident alien, you can use Form 1040NR, Schedule A.
For personal-use property, subtract any salvage value, reimbursement or insurance amounts from the total loss amount, and then subtract $100 from each casualty that occurred during the same tax year. From that amount, subtract 10% of your adjusted gross income to get the amount you are allowed to deduct for casualty loss.
Report your casualty loss on Form 4684 – Section A is used to report personal-use property and Section B is for income-producing properties or business losses.
If your deduction for casualty loss is more than your income, it’s possible that you will have a net operating loss. Individuals can claim an operating loss, similar to businesses – refer to IRS Publication 536 “Net Operating Losses for Individuals, Estates and Trusts” for more information about an individual net operating loss.