As an update to our previous Tax Alert, the IRS issued IR-2017-155 on September 15, 2017, to expand the Hurricane Irma Tax Relief to taxpayers located in any area designated by FEMA as qualifying for either individual assistance or public assistance in Florida.
Basically, all Florida currently qualifies for either public or individual assistance, as it is depicted on https://www.fema.gov/disaster/4337.
Have you suffered a casualty loss on the recent devastation of Hurricane Irma?
Definitely, this hurricane season has been very active and unfortunately destructive, considering the recent effects of Hurricane Irma and Hurricane Harvey. When natural disasters strike, you may wonder how to recoup the damages on your personal and business property, and certainly taking a deduction on your federal income tax return is one way to minimize the impact of a casualty loss.
We would like to share with our clients and friends some key tax items to consider when dealing with casualty losses.
- In general, casualty losses are deductible during the taxable year the loss occurred.
- Deductible casualty losses include losses caused by floods, storms, including hurricanes and tornadoes, among others.
- Certain losses, such as progressive deterioration, are not deductible.
Proof of Loss
- When deducting casualty losses, make sure you have the support of the following items:
- The type of casualty (car accident, fire, storm, etc.) and the date it occurred.
- That the loss was a direct result of the casualty.
- That you were the owner of the property or that you were contractually liable to the owner of the property for the damage.
- Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.
- In general, in figuring the deductible amount, you must consider the adjusted basis of the lost/damaged property or its decrease in value.
- Any insurance proceeds or reimbursements reduce the deductible amount of the loss. Nevertheless, if insurance covers your property, you must file a timely insurance claim for reimbursement of your loss. Otherwise, you will not be able to deduct the loss as a casualty.
- If the insurance proceeds or reimbursed amounts exceed the adjusted basis of the property, or it decreased in value, any gain may qualify as a gain from involuntary conversion, in which case it may be deferred until the property is disposed of.
Disaster Area Losses
In general, a casualty loss incurred in an area declared a Federal Disaster Area is deductible in the year it occurred. However, in certain cases, you can elect to treat the casualty loss as having occurred in the previous year in which the disaster occurred, so you can deduct the loss on your previous year income tax return and get a tax refund, if applicable, by filing an amended return for that preceding tax year.
Disaster Relief Assistance
For more information about governmental disaster relief assistance, you may visit the following links:
- Hurricane Irma – Florida: https://www.fema.gov/disaster/4337
Although you may claim a casualty loss in your current income tax return, you may want to consider deducting the loss in the previous year so you can get a refund from the IRS, if applicable. The dollar amount of the tax benefit depends on several factors such as the adjusted basis of the lost/damaged property or its decrease in value, any reimbursements or insurance proceeds, and your effective income tax rate.
For more information about how you may maximize your tax benefit with a sustained casualty loss, do not hesitate to reach out to your Tax Team at MSL.
Kurt A. Alter, CPA
Harry E. Harp, CPA
Norman Neal, CPA