If you've suffered property damage in a hurricane, wildfire, or other natural disaster, you may be eligible for tax relief to help offset part of your expenses. Here is an overview of what relief is available and who may qualify.
Casualty loss deductions for homeowners
If you suffered property damage or reduced property value related to your home, household items, or vehicles as a result of a natural disaster, you may be able deduct those losses on your federal income tax return. The casualty loss calculation generally has several steps:
- Add up your total loss.
- Subtract any insurance reimbursements.
- Subtract $100.
- Subtract 10 percent of your adjusted gross income.
Casualty loss deduction example:
$50,000 loss with $40,000 covered by insurance and a $50,000 AGI.
- Loss equals $50,000.
- Minus $40,000 in insurance equals $10,000.
- Minus $100 equals $9,900.
- Minus $5,000 (10 percent of AGI) equals $4,900.
In this example, the $4,900 remaining is your casualty loss deduction. According to the IRS, to claim this deduction, you must itemize your deductions and include it on Schedule A when you file.
When to claim the deduction
Generally, you must claim the casualty loss deduction in the year the disaster occurred. If you were the victim of a disaster in a federally-declared disaster area, you have the option of claiming the deduction in either the same year or for the previous year. You may wish to claim the deduction in the previous year if the disaster left you unable to work for a substantial period, resulting in your income being lower than usual. To do so, you would need to file an amended return, if you already filed for that year.
2018 tax law change to casualty loss deductions
Under the new tax law, taxpayers who suffer disaster losses in 2018 and beyond may only claim the deduction if they are in a federally-declared disaster area. The deduction will continue to use the same standard calculation as described above.
Special rules for Hurricanes Harvey, Irma, and Maria
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 creates special casualty loss deduction rules for victims of Hurricanes Harvey, Irma, and Maria who were located in the federally-declared disaster areas for those storms. For those losses, the casualty loss deduction is simply the total loss after insurance minus $500.
Casualty loss calculation example:
$50,000 loss with $40,000 covered by insurance and a $50,000 AGI.
- Loss equals $50,000.
- Minus $40,000 in insurance equals $10,000.
- Minus $500 equals $9,500.
In this case, the deduction is $9,500, rather than the $4,900 under the normal casualty loss rules. In addition, taxpayers qualifying for this rule may claim the casualty loss deduction even if they use the standard deduction.
What if your deduction is more than your income?
If your total casualty loss deduction exceeds your income, you may be able to apply the excess amount to other tax years.
- You may carry back the excess up to three years (five years for federally-declared disaster areas) and deduct it from your previous tax returns by amending them.
- You may carry forward any remaining amount up to 20 years to offset future taxes.
- You may opt to waive the carryback and only take the carryforward for future years.
Filing and payment extensions
The IRS typically issues blanket extensions to file tax returns and pay taxes to all taxpayers within a federally-declared disaster area. The effect for most individuals with April filing deadlines is that you must still file by April or with a standard extension, but you may pay less in interest and penalties if you didn't have enough withholding or estimated tax payments around the time of the disaster.
Talk to your tax professional
The above rules are only general guidelines, and exceptions may apply. In addition, you may also be eligible for additional relief on an individual basis. If you have questions about filing your taxes after a natural disaster, ask a tax lawyer or speak with a tax professional to figure out how much tax relief you could receive.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
