Essential Facts About Taxes and Natural Disasters

We extend our condolences to anyone who has experienced the wrath of a natural disaster. Although perhaps not quite a silver lining, it’s worth knowing that if you suffer damage to your home or personal property, you may be able to deduct losses based on the damage incurred during a disaster. Such disasters may include earthquakes, floods, hurricanes, and tornadoes, but can also include losses from accidents, fires, thefts and vandalism. The following rules apply to personal-use property; different rules apply to business or income property.

If your property is insured, you are required to file a timely claim for reimbursement. If you do not, you are unable to deduct the loss as a casualty. You are generally required to deduct a casualty loss the year it occurred. However if your loss was in a federally declared disaster area, you may have a choice when you deduct the loss, i.e. in the form of an amended tax return from the preceding year.

There are a few rules that must be applied to casualty losses:

$100 rule: once you have calculated your casualty loss on personal property, you must reduce that loss by $100. Apply this reduction to each casualty loss event during the year, regardless of how many pieces of property are involved in the loss.

10% rule: reduce the total of all your casualty losses on personal property for the year by 10% of your adjusted gross income.

You cannot claim casualty losses from normal wear and tear, including progressive deterioration or pest damage.

You are also not able to claim future losses for projected future profits.

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