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A possible tax hit for Sandy’s victims

Home - by - November 8, 2012 - 20:30 America/New_York - 6 Comments

MarketWatch.com

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

 

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» 6 Comments

  1. Xavier

    November 8th, 2012

    I like Ann Barnhardt’s solution better.

    Thumb up +2

     
  2. pissedpatriot30

    November 8th, 2012

    OR…. You can OPT not to live right next to the ocean. Oh, and I hate accountants and the IRS.

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  3. Mr. Happy

    November 8th, 2012

    I used to think Ann Barnhardt was “too much”, now I fear she is not enough.
    I credit her with spotting a trend that I was unaware even existed.

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  4. Edith McCrotch

    November 8th, 2012

    This is a translation for the math and tax rule inept….

    Very Rich = Taxes and Health Care = Ffffft!!!! So freekin’ what? We don’t “pay” taxes, we just pass it on to the consumers and what the hell is this thing called “health insurance”?

    Poor = Ffffft!!!! So freekin’ what? We don’t “pay” taxes, we just want our gubment cheese and free condoms NOW and what the hell is this thing called “health insurance”?

    Working class = Srewed AGAIN and need to mortgage the house again to pay for the KY jelly supply for the rest of your lives.

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  5. Debbie

    November 8th, 2012

    I don’t understand all this tax shit, but I remember taking all my receipts and paperwork to H&R Block last spring. All my FEMA paperwork and receipts for work I paid for after the big Missouri River flood of ’11. The guy told me…”I don’t need any of that.” This administration at first refused FEMA aid for us. They buckled after some pressure. After I flogged my house, I was down about $135K, but FEMA gave me about $15K.

    Rant over.

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  6. Bob M.

    November 9th, 2012

    Excellent!

    NY & NJ screwed us in the election, as they have for MANY years. Screw ‘em ALL right back – in the ass!!!

    >:-D

    Thumb up +1