Disaster Loss Tax Deductions

This post is designed to inform you on how to go about declaring losses you may have incurred as a result of Hurricane Sandy.  This information comes direcly from the IRS and falls under the topic of  Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas).”  Therefore references to “casualty,” “disaster,” and “theft” are all relevant to the losses you suffered as a result of Sandy.  We will offer you access to a worksheet to help determine losses which you may take to your tax professional.

Generally, you may deduct casualty and theft losses relating to your home, household items and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement, and you reduce the loss by the amount of any reimbursement or expected reimbursement.

A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration.

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and it must have been done with criminal intent.

If your property is personal-use property or is not completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of your property as a result of the casualty

Download the Casualty, Disaster and Theft Loss Workbook
This workbook is designed to help you figure loss of property in the event of a disaster, casualty, or theft. It contains schedules to help you figure the loss to your personal property. I recommend completing this workbook if you have losses and bringing it to your tax preparer. These schedules, however, are for your information only.

The loss, regardless of whether it is a casualty or theft loss, must be reduced by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation.

Individuals are required to claim their casualty and theft losses as an itemized deduction on Form 1040, Schedule A (or Form 1040NR, Schedule A)Down, if you are a nonresident alien). For property held by you for personal use, once you have subtracted any salvage value and any insurance or other reimbursement, you must subtract $100 from each casualty or theft event that occurred during the year. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year.

In other words, your losses must exceed 10% of your gross adjust income in order to receive any return on the loss deductions you claim.

Additional Resources:

For losses involving business-use property, refer to Publication 584B, Business Casualty, Disaster, and Theft Loss Workbook.

If your loss deduction is more than your income, you may have a net operating loss. You do not have to be in business to have a net operating loss from a casualty. For more information, refer to Publication 536, Net Operating Losses for Individuals, Estates, and Trusts.

For Your Information:

For the past 7 years your author, Jennifer Pricci, has been using Tara Leonard at H&R Block, Middletown to file her taxes.  Tara spends a great amount of time making sure no stone goes unturned.  She also educates you during the process and explores different ways to file deductions for maximum return.

Jennifer highly recommends Tara and has referred many friends and family members who have also been completely satisfied.  This year Jennifer suffered 28,000 in losses due to Hurricane Sandy.  As this amount exceeded 10% of Jennifer’s adjusted gross income Jennifer was able to collect a refund on a percentage of these losses.

To schedule an appointment with Tara Leonard of H&R Block call (732) 671-9314 and tell them you were referred by Tara’s current client, Jennifer Pricci.

Tara Leonard
Senior Tax Advisor
H&R Block
(732) 671-9314

Route 35 at New Monmouth Road (Boston Market Shopping Center)
Middletown, New Jersey
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* Patrick Parker Realty offers this advice and referral for informative purposes only.  Patrick Parker Realty cannot be held liable if this information results in unsuccessful tax filing or audit.  Patrick Parker Realty’s ultimate advice is to consult with the tax professional of your choice.