Changes in the federal tax laws allow taxpayers the full deduction of many “casualty loss” items and residences resulting from damage caused by Hurricanes Katrina, Wilma and Rita. Because the law allows for the deduction of qualified hurricane-related casualty losses to be deducted in the current year or the prior year (which ever is most advantageous), taxpayers should take extra care to ensure the correct calculations before determining which tax year yields the most tax advantages.
“Many taxpayers are also unaware that their uninsured costs (even if only their insurance deductibles) would be allowed,” explains Carl N. Howden, CPA and partner with Rachlin Cohen & Holtz. “Taxpayers can save significant tax dollars that come by way of refunds to offset their out-of-pocket costs.”
While the insurance claims may not have been received as yet or in many cases an insurance adjuster may have not even visited yet, residents should still calculate all potential losses to produce maximum tax benefit.
“The other big question we are facing is how to document losses in cases where insurance adjusted or damage calculations are not available as yet,” Howden says. “In such cases, residents should contact their repair contractors to get the best estimates possible. While adjustments will be allowed in subsequent tax years, homeowners want to make sure they get as accurate a calculation as can be secured in order to get the maximum justifiable deduction.”
The following advice is given for businesses:
“For our business clients, they have been pretty good in getting their hurricane damages documented early,” said Howden. “But many are unaware of the ‘employee retention credit’ that allows a tax credit for businesses who paid their employees during periods they were inoperable due to the storm. This has proven to be a nice surprise for businesses that made the decision to pay employees who could not work due to offices and warehouses being closed from storm-related issues.”