What Is Disaster Loss?

A disaster loss is a special type of tax-deductible loss, similar to a 澳洲幸运5官方开奖结果体彩网:casualty loss, where a loss has been incurr💜ed by taxpayers who reside in an area in the U.S. that has been designated as a federal disaster area by the president. Disaster losses can arise from such phenomena as floods, forest fires, and earthquakes♛.

Understanding Disaster Loss

A federally declared disaster area is eligible for federal assistance once it is declared a disaster by the president. This is stated under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, which was signed into law in 1988, and authorizes the federal government to provide various means of assistance to states and localities in the case of a declared disaster. The Federal Emergency Management Agency (FEMA) keeps a list of declared disaster areas.

A qualified disaster loss is similar to a casualty loss but may provide more favorable tax deductions. Not every federally declared disaster is known as a qualified declared disaster. Examples of declared disasters that were qualified include Hurricane Harvey, Hurricane Irma, and the California wildfires. Those qualified disasters had special 澳洲幸运5官方开奖结果体彩网:tax relief options.

How to Claim Disaster Loss

Typically, 澳洲幸运5官方开奖结果体彩网:disaster losses may be deducted either in the year that the loss is incurred or the previous year if it is more beneficial to the taxpayer and depending on the type of disaster. A tax professional is best-suited to distinguish which year is most beneficial for the ta💛xpayer.

Many people will take the deduction on the previous year because it provides them with an immediate refund on sudden losses. 澳洲幸运5官方开奖结果体彩网:Homeowners who must relocate due to damage in a disaster area can often claim a loss even though the damage sustained does not meet the sudden event test. The sudden event test dictates that the loss must occur as a result of a sudden and unpredictable or unusual event. Disaster loss rules are the same for renters and commercial property owners as they are for homeowners.

FEMA provides a list of all eligible disaster areas and the years for which they qualify. Disaster victims in these areas do not have to 澳洲幸运5官方开奖结果体彩网:itemize deductions—they would report the loss on 澳洲幸运5官方开奖结果体彩网:Form 4684 of the standard deduction worksheet. Taxpayers who itemize, report it on 澳洲幸运5官方开奖结果体彩网:Schedule A.

How to Calculate Disaster Loss

Taxpayers can deduct losses related to the home, household items, and vehicles but cannot deduct losses covered by insurance. If the homeowner files an 澳洲幸运5官方开奖结果体彩网:insurance claim right away, they can subtract the loss from the amount of reimbursement and deduct the remainder. The homeowner would take the 澳洲幸运5官方开奖结果体彩网:adjusted basis of the property (or the decrease in the 澳洲幸运5官方开奖结果体彩网:fair market value of the property because of the disaster) and subtract the insurance reimbursement.

For examp𒀰le, if the adjusted basis of a property was $100,000, and the insurance reimbursement was $80,000, the tax deduction would be $20,000.

What Types of Disasters Apply to Disaster Loss?

The types of disasters that have applied to disaster loss have typically been natural disasters including floods, hurricanes, tornadoes, fires, and earthquakes. As mentioned above, only taxpayers who live in an area in the U.S. that has been designated as a qualified federal disaster area by the president and have suffered a loss are eligible to take the disaster loss deduction.