Casualty Loss Tax Deductions - Disaster Relief
This article explains federal income tax deductions that may be available to you after a disaster. It includes links to forms you would need and information about calculating your losses.
Can I deduct disaster losses from my federal income taxes?
Yes. If you live in a federally designated disaster county and suffer damage to your home or personal property attributable to the disaster, you may be able to deduct your losses on your federal income tax return.
For a listing of federally declared disaster areas and tax relief for those areas, go to Tax Relief in Disaster Situations. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 changed the rules for reducing the loss base for people affected by Hurricane Harvey.
In what tax year should I claim the deduction?
If there is a federal declaration, you can elect to deduct the loss for the year the loss occurred or on an amended return for the immediately preceding tax year. Individuals and businesses in a federal disaster area will obtain a refund more quickly by filing
an amended return. At minimum, you will need to:
- Report your loss by completing IRS Form 4684, Casualties and Thefts, and
- Claim the deductible amount on Schedule A, Itemized Deductions or add the loss to your standard deduction.
Are there exceptions as to what I can deduct?
Yes. Keep in mind the following:
- Casualty loss does not include losses from normal wear and tear or progressive deterioration from age.
- If your property is insured but you failed to file a timely claim for insurance reimbursement, you can’t deduct the loss as a casualty.
- You may only deduct property losses that are not covered by insurance or other reimbursement.
How do I figure the amount of loss?
- First, determine the adjusted basis in the property before the casualty, which is generally what it cost. See IRS Publication 551, Basis of Assets.
- Then determine the decrease in fair market value (FMV) of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The difference between the value of the property before the casualty and it’s FMV after the casualty is your “casualty loss”.
- For your personal property, subtract $500 from your casualty loss to determine your deduction.
Some of the casualty loss rules for business or income property are different than the rules for property held for personal use. For information on how to calculate and claim a disaster loss, see Publication 547, Casualties, Disasters, and Thefts and Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property).
How can I get copies of my federal tax returns?
Most of the time a transcript of your tax return will satisfy most requests. The transcript is free.
Transcripts: The IRS can produce different types of transcripts depending on what you need the transcript for. Order by calling 800-908-9946 and follow the prompts, or go Get Transcript on www.IRS.gov. Transcripts can be sent from the IRS to a third party, such as a mortgage institution, if you allow disclosure.
Exact copies - disaster victims: The IRS will waive fees and expedite the request for taxpayers in a federally declared disaster area. For an exact copy with attachments (including Form W-2) complete IRS 4506 Request for Copy of Tax Return. If you are not in a federally declared disaster area, the fee is $50 for each return and may take as long as 75 business days to receive. Consider requesting a transcript instead. On jointly filed tax returns, either spouse may request a copy or only one signature is
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