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Casualty Losses from Storms

If your home or other property was damaged as a result of the storms in April 2011, you may be able to take a deduction for the loss. To be deductible as a casualty loss, the property must be damaged, lost or destroyed by a sudden, unexpected or unusual event. If you have suffered a loss, there are several tax issues that you need to consider, such as determining the year in which to take the loss, valuation of the property, limitations and adjustments to the loss, and the tax consequences of any insurance reimbursements or recoveries.

The amount of a deduction is generally determined by the difference in the fair market value of the property before and after the loss, or by the cost of the necessary repairs to restore the property to its original condition. However, the amount of a loss cannot exceed your basis. The amount of the loss is further reduced by any amounts covered by your insurance company, regardless of whether or not you file a claim.

Casualty losses related to disasters may be deducted in the year of occurrence or, at taxpayer's election, in the immediately preceding tax year. To qualify for the election, the loss must be caused by a disaster that occurs in a federally declared disaster area. The election is made on a return, an amended return or a refund claim. Disaster loss deductions for personal property are subject to the same three limitations as other casualty losses:

  1. the $100 per casualty floor;
  2. the limit on personal casualty losses based on the amount of personal casualty gains; and
  3. the 10 percent of adjusted gross income (AGI) floor.

Recovering from a casualty loss takes time and planning. Please contact our office to discuss your casualty loss tax issues and determine your best options for recovery.

To comply with the requirements of IRS Circular 230, we must inform you that the information discussed above is not intended or written to be used, and cannot be used by the recipient or any other taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or to promote, market or recommend to another party any transaction, entity, investment plan, arrangement or other matter.