file Photo by Boyd Loving
A possible tax hit for Sandy’s victims
By Bill Bischoff
In addition to the tragedy of lost lives and injuries, Superstorm Sandy caused many billions of dollars in property damage. The sad truth: disasters occur every year in America. If you’re unlucky enough to suffer a disaster-related casualty, here’s what you need to know about the federal income tax implications.
Deductions for Personal Casualty Losses
Theoretically, our beloved Internal Revenue Code allows you to claim an itemized deduction — on Schedule A of your Form 1040 — for personal casualty losses to the extent they are not covered by insurance. Exactly what is a casualty loss? It’s when the fair market value of your property or asset is reduced or wiped out by a hurricane, flood, storm, fire, earthquake or volcanic eruption (not to mention sonic boom, theft or vandalism).
In reality, however, many disaster victims won’t qualify for any personal casualty loss write-offs because of the following two rules. First, you must reduce your loss by $100. Obviously, that’s no big deal. Then you must further reduce the loss by an amount equal to 10% of your adjusted gross income (AGI) for the year (AGI is the number at the bottom of page 1 of your Form 1040). That is a big deal. Say you incur a $20,000 personal casualty loss this year and have AGI of $100,000. Your write-off is a relatively puny $9,900 ($20,000 minus $100 minus $10,000). You get absolutely no tax break if your loss before the two required subtractions is $10,100 or less, and you have no chance at all if you don’t itemize.
But let’s assume you do have a deductible personal casualty loss from a 2012 event after the two subtractions. If the loss was caused by a disaster in a federally declared disaster area (more on that later), a special rule allows you to claim your rightful deduction either this year or last year. For example, victims of Hurricane Sandy can file amended 2011 returns and claim their losses last year. This rule allows you to get some immediate tax savings instead of having to wait until next year when you finally get around to filing your 2012 return. Remember: this special rule is only available for losses in federally declared disaster areas. You can find a by-state listing of these areas by using the interactive map on the Federal Emergency Management Agency (FEMA) website at www.fema.gov .
https://www.marketwatch.com/story/a-possible-tax-hit-for-sandys-victims-2012-11-07