In a story on deductions for casualty losses published last week, I explained the usual rules for writing off losses. This time, we’ll talk about law changes that took effect in September.
They boost allowable write-offs for many millions of individuals whose homes, dwellings and other properties were damaged or destroyed last August by Hurricanes Harvey and Irma.
Recall that the usual rules prohibit individuals who use the standard deduction from claiming losses. They must itemize on Form 1040’s Schedule A to claim losses.
Also, there’s a limit on deductions for losses (after they’re reduced for insurance recoveries and $100 for each casualty). They’re allowable only to the extent that their total in any one year exceeds 10 percent of an individual’s adjusted gross income and are deductible only for the year in which they occur.
There are losses that happen in disaster areas that are eligible for federal assistance. Different, more favorable rules apply to those kinds of losses. They allow qualifying individuals to apply their losses to either the occurrence year (2017), or, should that be more advantageous, the previous year (2016)
Here is how the revised rules help hurricane victims. They introduce a minor tweaking that increases the $100 floor to $500. On the plus side, no longer do they bar those who opt for the standard deduction from claiming losses. The big change is that their entire losses are allowable, not just the portion that exceeds 10 percent of AGI.
Tax-trimming tactics when six-figure losses offset five-figure incomes. Under both the old and the new rules, another break becomes available when disaster-related losses exceed income.
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About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.