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Hurricanes Harvey and Irma: Casualty loss deductions

As Hurricanes Harvey, Irma and Maria victims recover from the devastation, it is without a doubt there will be immense personal and business losses. The first few weeks after a natural disaster are critical in properly documenting casualty loss claims, and it’s important to understand how and when to claim federal income deductions for casualty losses.

On September 29, 2017, U.S. President Donald Trump signed into law the Disaster Tax Relief and Airport and Airway Extension Act which provides tax relief for taxpayers impacted by Hurricanes Harvey, Irma and Maria. While the bill includes a host of tax relief measures, one area affected individuals should to pay attention to are the casualty loss provisions.

Generally, when property has been destroyed, the taxpayer first determines if the damage resulted from a “casualty,” such as an unexpected fire or natural disaster. The taxpayer then determines by having the property appraised or by analyzing repair costs the difference in the damaged property’s fair market value before and after the loss. Individuals are then required to claim their casualty losses on Schedule A to Form 1040.  

Under current law, taxpayers can deduct losses sustained and not compensated by insurance or other reimbursements in excess of $100 from their income taxes if they exceed 10 percent of their adjusted gross income (AGI). With the passage of the Disaster Tax Relief and Airport and Airway Extension Act, designated storm victims can write off their losses, regardless if they itemize deductions on Schedule A or not. While the law eliminates the 10 percent AGI limitation, it increases the $100 per casualty floor to $500.

The casualty losses can be claimed on a 2017 Form 1040, an amended 2016 return or an original 2016 return if not yet filed.

Begin documenting your casualty losses now because waiting to compile all the necessary information next year will be extremely difficult. The IRS offers worksheets for personal and business use of property disaster and casualty loss which are available at irs.gov.

For more details, please visit here. If you have additional questions or concerns, please contact your Rehmann tax advisor.

References:

https://home.kpmg.com/content/dam/kpmg/us/pdf/2017/09/tnf-wnit-hurricane-loss-sep18-2017.pdf

https://www.irs.gov/taxtopics/tc500/tc515

https://www.kpateloffice.com/hurricane-harvey-irs-casualty-loss-deduction/

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