This past year the nation has faced many disasters, including an extraordinary string of more than 516 tornadoes that ravaged the Midwest and southeast, killing 39 people in a single month. Hurricane Isabel battered the east coast in September; wildfires and mudslides devastated entire communities in Southern California in October; and power outages caused widespread panic in the northeast in August.
People involved in these disasters could be eligible for certain tax benefits.
The American Institute of Certified Public Accountants (AICPA) and the National Endowment for Financial Education (NEFE) have created a guide available on the American Red Cross Web site that details steps Americans can take to minimize financial loss associated with disaster. The guide also contains a section on tax considerations.
Suggestions are as follows:
First, rules regarding casualty losses are complex and can change. Seek expert advice from a CPA financial planner or other financial advisor.
In general, losses are deductible if, in one year, they total more than $100 and more than 10 percent of your adjusted gross income.
- Keep documentation to prove that a loss took place due to a specified disaster, the dollar amount of the loss, and who owns or is liable for the property. Some costs of documenting your loss, such as appraisals or photographs, may be tax deductible.
- You can't deduct losses that are covered by insurance or emergency aid assistance.
Be aware that special casualty loss rules apply in a federally declared disaster area. For example, you can amend your previous year's tax return to report current losses on your current year's return. This gives you a quick refund (generally within 45 days) of taxes you've already paid. Also, tax filing deadlines and payment schedules may be extended in a federal disaster area.