The tax rules can provide relief when disaster strikes

Hurricanes, tornadoes, earthquakes, wildfires, floods, storms. Few parts of
the country escape the risk of natural disaster. If you’re an unlucky victim,
you may receive help from insurance and federal disaster aid. But the tax
code also offers some relief. You may be able to take an itemized deduction
for part of your loss. In tax terms, it’s a “casualty loss,” and it can also apply
to events such as a car crash, a house fire, or theft. Here are the basics.

• Sudden event. The loss or damage must be due to an unexpected and
sudden event. Losses due to slow deterioration over the years, such as rot,
rust, or insect damage, don’t qualify.

• Tax deduction. Your tax deduction won’t equal your total loss. You must
subtract any insurance or other reimbursement. Then you must also deduct
$100 for each loss and 10% of your adjusted gross income.

• Basis adjustment. Your loss may also be limited by your adjusted basis
in the property. That’s generally what you paid for it, plus or minus any
improvements or previous losses.

• Disaster classification. In a widespread disaster, the area may be
classified as a “federally declared disaster area.” If that happens, you have
two choices. You can claim your casualty loss against the current year’s
taxes. Or you can amend the previous year’s return and claim your loss
against that year’s taxes. That usually generates a faster refund, but it may
change the amount of your deduction.

If you’re unlucky enough to suffer a casualty loss, please
contact us at (219) 769-3616 or e-mail your questions to
tlynch@swartz-retson.com. We’ll help you claim the
maximum possible tax benefit.
SWARTZ, RETSON & CO., P.C