Income tax reductions (i.e., deduct uninsured losses)

If you suffer losses caused by a federally declared disaster, you can deduct the cost as a casualty loss on your federal income tax return, which either reduces the amount of tax you owe or increases your tax rebate, depending upon how much you earn and the extent of the damage. The IRS considers the “damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption” to be a casualty loss. Generally, you can deduct casualty losses relating to your home, household items, and vehicles.

According to the IRS website, “If your property is personal-use property or isn’t 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.” If your property is a business or produces income, and is completely destroyed, then “the amount of your loss is your adjusted basis.”

In some states, you may also be able to receive a reduction on your state taxes. Check with your state department of revenue.

Next Steps:

1. There are three types of casualty losses for federally declared disasters: federal casualty losses, disaster losses, and qualified disaster losses. Since the requirements for each type of casualty loss vary, visit IRS Topic No. 515 Casualty, Disaster, and Theft Losses to get more information.
2. You may want to contact a tax professional, such as a Certified Public Accountant (CPA) to help make sure that you meet all of the requirements for your type of loss.
3. Fill out Form 4684 – Casualties and Thefts, and attach it to your tax return.
4. Submit your tax return with the Form 4684.

Special Considerations:

• The IRS prohibits deducting casualty losses covered by insurance, unless you file a timely claim for reimbursement and reduce the loss by the amount of any reimbursement or expected reimbursement.