Frankenstorm: Post-Hurricane Accounting for Casualty Loss

Contributed by The Bonadio Group

After Hurricane Sandy and subsequent damage to the Northeast region, taxes are probably the last thing on your mind. However, with disasters comes property damage.
 
Generally, you may deduct casualty losses relating to your home, household items, and vehicles. It is important to know the rules on casualty losses caused by natural disasters to help protect your investments.
 

Be Prepared to Help Clients

Personal use property casualty losses are deducted on Section A of Form 4684, Casualties and Thefts. Casualty losses of personal use property are deductible only to the extent that the amount of the loss from each separate casualty or theft is more than $100 and the total amount of all losses during the year is greater than 10 percent of your adjusted gross income.

A casualty loss is calculated as the lesser of:

  • The adjusted basis in the property before the casualty; or
  • The decrease in FMV of the property as a result of the casualty.

This amount is reduced by any insurance or other reimbursements received.

For more information on claiming the casualty loss deduction, check out:

 
A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event, such as a flood, hurricane, tornado, fire, earthquake, or even volcanic eruption. 
 
Federally declared disaster areas qualify for disaster loss treatment. Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss in a federally declared disaster area, you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster occurred. This can be a great way to get immediate relief instead of waiting for the tax year to end.
 
To determine if you or your clients are in a federally declared disaster area, please visit FEMA's Disaster Declarations website page
 
See also:
  • IRC §165 and Reg. Sec. 1.165-7
  • IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook
 

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