Casualty Loss Deductions on a Tax Filing

Casualty Loss Deductions on a Tax Filing

Natural catastrophes, including hurricanes, cyclones, flooding, wildfires, and others, impact US inhabitants yearly. The unfortunate thing is that post-natural disaster recovery efforts can be expensive. For instance, hurricanes can generate significant flooding and wind damage when they land. CPA in Poughkeepsie, NY, can be helpful for you.

Since most common insurance policies will not cover flood damage, numerous homeowners are not protected from losses brought on by floods. Tax relief is fortunately available, but only when you meet specific requirements. The IRS routinely extends filing timelines for taxpayers who live or operate a business in the calamity region, including entrepreneurs and self-employed people who may owe anticipated taxes.

Luckily, personal casualty damages are deductible from your taxes if the property is located in an area that has been declared a disaster zone by the government.

Additional requirements include the following four:

  • An unexpected, sudden, or uncommon incident resulted in the loss.

All-natural catastrophes, including floods, hurricanes, tornadoes, and wildfires, are considered unexpected, unforeseen, or extraordinary phenomena.

  • Insurance did not pay for the damages.

Only casualty damages not insured or compensated by your insurance carrier are eligible for a deduction. Remember that timing is crucial. If you file a claim with your insurance provider later in the year, it is possible that it will not be completed in time for you to file your taxes. Applying for a 6-month tax extension is one option. 

  • Your losses were more expensive in terms of money than the IRS’s mandated deductions.

The IRS has a list of “reductions” you must make to include casualty damages on your tax filings. Taxpayers must deduct $100 from the overall loss amount to qualify for the first reduction, sometimes known as the $100 loss limit.

The loss amount must then be reduced by 10% of your adjusted gross income.

Two Ways To Deduct Accident Losses From Your Tax Returns.

Casualty losses are typically claimed in the year you experienced the loss or, typically, the year that the casualty happened.  However, suppose you have suffered a loss of life due to a federally-proclaimed catastrophe in a location deserving community or private aid. In that case, you do have another choice (or both). You have the option in this situation to consider the casualty damage as having occurred in the tax year that was immediately before the one in which you suffered the disaster loss. You get a year from the deadline to file an updated return for the prior tax year if you decide to claim losses.