Disaster may be tax-deductible
If you suffered losses from a flood, hurricane or other disaster that weren't covered by insurance, you may be able to deduct your losses on your federal income tax return.
This post is by Carole Feldman of The Associated Press.
Tornadoes and hurricanes. Wildfires and floods. Earthquakes and blizzards.
There were a record number of billion-dollar natural disasters in the United States in 2011, and taxpayers who suffered losses might be able to get some relief when they file their income tax returns.
"It's a silver lining on otherwise terrible events," said Mark Steber, chief tax officer at Jackson Hewitt Tax Service. "Tax laws in many cases are very favorable."
There are special provisions if the loss is a result of a federally declared disaster. But losses don't have to fall into that category to be deductible, said Bob Meighan, a vice president at TurboTax. Even if the storm was localized and on a smaller scale, you still might be eligible to take a casualty deduction for losses exceeding what you were reimbursed by insurance.
The Internal Revenue Service defines a casualty loss as "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."
There were plenty of those events last year, including the Groundhog Day blizzard that swept from New Mexico to New England, tornadoes in the Midwest and Southeast, wildfires in Texas and Hurricane Irene. The National Oceanic and Atmospheric Administration says there were 12 natural disasters last year that each wreaked more than $1 billion in damage. (Post continues below video.)
Losses from natural disasters generally are treated like other casualty losses or theft on your income tax.
What's not deductible: damage by the family pet, or accidental breakage or losses as a result of normal wear and tear -- "progressive deterioration," the IRS calls it.
If your property is covered by insurance, the IRS requires that you file a claim with the insurance company in a timely manner before trying to deduct the loss.
Only losses not covered by insurance may qualify for relief on your federal income tax.
To be deductible, your total loss -- less $100 for each loss event during the year -- must exceed 10% of your adjusted gross income.
If it doesn't, it's possible you could still treat it as a net operating loss that can be claimed on past or future tax returns. Check with a tax specialist.
MSN Money columnist Jeff Schnepper, author of "How to Pay Zero Taxes" (McGraw-Hill, 2011), said it's important to establish the cost and fair market value of the damaged items before the disaster, as well as the fair market value afterward. "The best way to prove that is pictures," he said.
Filing insurance claims also will help establish the worth of the property and the extent of the damage.
You'll have to file both a Schedule A and Form 4684 with itemize deductions in your tax return. IRS Publication 547 provides information and instructions for filing casualty and theft deductions.
Taxpayers who are in federally declared disaster areas have the option of taking the deduction for their losses on their 2011 returns or filing an amended return for 2010.
"This can help put money in your pocket now, when you need it most," the IRS says in a podcast.
Filing an amended return also might help taxpayers whose income increased in 2011 and who might not meet the adjusted gross income test for deductions this year.
Kathy Pickering, executive director of the Tax Institute at H&R Block, recommends that victims with losses work with a tax adviser to see which avenue is more beneficial.
The IRS can help, too, if your financial records were destroyed in the disaster. You can request copies of previous tax returns.
The agency often grants extensions to people in federally declared disaster areas, both for filing and payment of any taxes due. Check the IRS disaster relief website.
Being prepared for a disaster can help, so inventory your property beforehand and take pictures.
The IRS also recommends that taxpayers use electronic recordkeeping to safeguard important documents such as bank statements. W-2 statements and paper tax returns can be scanned and stored electronically. If you still want paper copies, keep them in a safe place.
More from MSN Money:
- IRS offers deal on overseas cash
- Free tax return help at Wal-Mart
- Tax filing deadline extended to April 17
- Should you do your own taxes?
- 10 big deductions too many of us miss
VIDEO ON MSN MONEY
Ad libb why they did also need to now and thatys not important if they dont careit would get rebuilttalk iks cheap and leaves in THEIR JOB ANF MORE AD LIB REQUIREMENT FROM AL TGHE UNUIVERSITYS THAT IS NOT NORMAL.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.