Summer is prime time for a natural disaster…
hurricane, tornado, widespread flooding, wildfire, etc. But know the tax laws and IRS can be of help if your home, business or belongings suffer damage from a federally declared disaster this year.
You can deduct your losses to the extent…
you are not reimbursed by insurance. Your loss is equal to the smaller of the damaged property’s adjusted basis or decline in value, less any insurance proceeds that you receive or expect to receive in the future. Use Form 4684 to calculate and report disaster losses, and enter the FEMA disaster declaration number, found at www.fema.gov/disaster.
Only itemizers can claim a deduction for damage to nonbusiness property.
And two offsets apply: The loss that you calculate is first reduced by $100. The balance is deductible only to the extent it exceeds 10% of adjusted gross income. (More-generous rules apply for taking losses from disasters in 2018, 2019 and 2020.) The rules for deducting casualty losses on business assets are more liberal. A business casualty loss needn’t be attributable to a federally declared disaster. The $100 and 10%-of-AGI offsets don’t apply. And non itemizers can write off losses.
Computing the amount of loss to your home or belongings can be difficult.
Luckily, IRS has multiple safe harbors to help you with this calculation. For example, one method lets a homeowner with casualty losses of $20,000 or less take the lesser of two repair estimates to determine the decrease in the home’s value. Another has a table to compute the replacement cost of personal belongings destroyed in the federally declared disaster.
2022 disaster losses can be claimed on either your 2022 or 2021 tax return.
That’s because individuals can opt to take the loss on the return for the disaster year or the return for the year preceding the disaster. If you’ve already filed your 2021 1040, you can amend it to take the write-off by filing form 1040-X. Note that for this purpose, the due date for filing the amended return is six months after the normal filing date for 2022 returns. For 2022 disaster losses, this translates to Oct. 16, 2023.
Remember, IRS can be your friend if you are affected by a disaster.
It has a designated number for disaster-related questions: 866-562-5227. You can use the free Get Transcript online tool on IRS’s website to view and immediately print a transcript, which is a summary of key data on a tax return. Alternatively, call 800-908-9946 or mail Form 4506-T to order a transcript. People seeking copies of actual returns must request them by mail, using Form 4506. There is normally a $43 fee per return, and it can take the Service up to 75 days for processing. However, if you live in a federally declared disaster area, you can get the fee waived and the agency will expedite getting the return to you. And IRS gives disaster victims more time to file returns and pay taxes.