It will likely take months and even years for many residents of Texas to pick up the pieces after the devastation caused by Hurricane Harvey.
This comes as small solace, but at least victims may benefit from certain provisions in the federal tax law. In fact, they may be in line for immediate tax relief by making a special tax return election.
The IRS is doing its part to inform tax professionals. As we head into the midst of hurricane season, it is offering a series of 10-minute webcasts relating to National Preparedness Month (see list below).
The basic tax rules are well-grounded. Generally, you can deduct losses from casualties and thefts on your personal return for damage to your property caused by events that are “sudden, unexpected or unusual .”
Of course, this includes destruction of property from hurricanes, floods and the like, but not for damage caused by a gradual deterioration.
After insurance proceeds relating to the event have been subtracted, taxpayers must apply two rules to personal property losses:
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- 1. The deductible amount is reduced by $100 for each casualty or theft event.
- 2. The remainder is deductible only to the extent it exceeds 10 percent of your adjusted gross income (AGI).
For instance, let’s assume that a Texas resident has an AGI of $100,000 and suffers an uninsured loss of $20,000 for damage to a home from flooding. Absent other losses during the year, the deductible amount is limited to $9,900. (Note: These two limits don’t apply to losses too business property.)
In the event of a natural disaster like Harvey, taxpayers residing in an area designed by the president as a federal disaster area can obtain fast tax relief.
Normally, the deduction for casualty losses is claimed on the tax return for the year in which the casualty event occurs. Thus, for losses incurred in 2017, you typically would deduct a loss on the 2017 return you file in 2018.
However, for losses in a federal disaster area, you may choose to deduct the loss on the tax return for the year immediately preceding the tax year in which the disaster actually occurred.
In other words, if you qualify, you don’t have to wait to file your 2017 tax return to obtain a tax refund from the IRS. Instead, you can file an amended return for 2016, claiming the loss you incurred in 2017.
Finally, be aware that a taxpayer has 90 days to undo this election. If the election is revoked before the taxpayer receives a refund, he or she then has 30 days to return it.
How to Prepare for the Worst
The IRS is encouraging tax professionals to sign up for these upcoming webcasts to help prepare for disasters:
|Sept. 1||Planning for Disaster “Making Sure You’re Ready”|
|Sept. 8||Data & Records Protection|
|Sept. 15||Federal Tax Relief|
|Sept. 22||Calculating and Report Disaster Area Losses|
|Sept. 29||IRS Disaster Assistance and Emergency Relief Program|
Each 10-minute webcast is available at two different times:
Session 1 – 11 a.m. ET
Session 2 – 2 p.m. ET
To register, the IRS says to send an email to
Be sure to include your name, email address and the session date and time.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.