Normal casualty losses are typically reported in the tax year they occurred. However, if you have a casualty loss from a federally declared disaster, you can deduct those losses on your return from the past year -- which can get you your much-needed money sooner. This is called amended filing, and makes you eligible for an immediate tax refund to assist you with living and rebuilding expenses. Use Form 1040X for an amended return.
Once an American president declares that an area is a federal disaster -- usually after a major weather event -- the Federal Emergency Management Agency (FEMA) opens up a path for federal assistance, including tax help. Tax relief from disaster loss covers:
- Extended filing deadlines
- Reduction or elimination of penalties for late filing
- Persons whose tax records were destroyed in an affected location
- Workers helping out in disaster areas
The process for calculating your casualty loss is similar to the way you would file a regular casualty loss, except that you can file immediately in the case of a federal disaster. Unfortunately, the IRS doesn't provide deductions for missed or lost wages. Expenses for repairs should take care of the damage only, and can't be used to improve on the state of your home or property.
The IRS doesn't require you to submit documentation with your tax return, but it's always a good idea to keep records because any claims of casualty losses can trigger an audit by the IRS [source: Fishman]. Save important paperwork, such as photographs, the date of the casualty, receipts, copies of any checks written, and proof that you were either the owner or responsible for the property.
And even if your home only suffers minor damage, but later the government decides your home must be torn down, you still may claim a casualty loss as long as it happens within 120 days of the disaster [source: Bell].
For more about taxes and deducting losses, check out the links below.
- Bell, Kay. "Unexpected government help for disaster victims." Bankrate. Feb. 6, 2008. (Oct. 7, 2014) http://www.bankrate.com/brm/itax/edit/tips/stories/casualty_losses2a.asp
- Business Owner's Toolkit. "Casualty Loss Rules Differ for Personal and Business Property." Feb. 10, 2014. (Oct. 7, 2014) http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/casualty-loss-rules-differ-for-personal-business.aspx
- Fishman, Stephen, J.D. "Deducting Casualty and Theft Losses." 2014. (Oct.7, 2014) http://www.nolo.com/legal-encyclopedia/deducting-casualty-theft-losses.html
- IRS. "Form 4684, Casualties and Thefts." Dec. 26, 2013. (Oct. 7, 2014) http://www.irs.gov/uac/Form-4684,-Casualties-and-Thefts
- TurboTax. "About Casualty Deduction for Federal Income Tax." Intuit. 2014. (Oct. 7, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/About-Casualty-Deduction-for-Federal-Income-Tax/INF14772.html
- Whipple, Gerry. "Ten Tips for Deducting Casualty and Theft Losses." Henry and Horne, LLP. Apr, 14, 2010. (Oct. 7, 2014) http://www.hhcpa.com/blogs/income-tax-accountants-cpa/ten-tips-for-deducting-casualty-and-thefy-losses