According to the IRS, taxpayers can claim casualty losses from all kinds of natural disasters, including earthquakes, volcanic eruptions, tornadoes, hurricanes, and floods. In general, the criteria for claiming a casualty loss as a tax deduction is that it must be a “sudden event.” Because most natural disasters meet this standard, taxpayers are generally able to write these costs off on their taxes.
What are casualty losses?
Put simply, a casualty loss refers to a loss of property for which you do not receive insurance reimbursement. As an example, if your home is flooded during a natural disaster, your insurance policy may only cover a certain amount of it due to deductible or coverage limits. In this case, the excess amount of the loss for which you are not compensated would qualify for a casualty loss deduction. You can also take a casualty loss if your insurance company denies your entire claim. The IRS does not require you to explain why the claim is refused in order to claim your loss as a deduction.
IRS rules for claiming a casualty loss
The IRS does have a few stipulations that apply to claiming a casualty loss. For example, the amount of the loss is limited to amounts over $100 per event. This means that if you qualify for the deduction, you’ll have to subtract the first $100 of damage from your loss amount before claiming it.
Another IRS requirement for casualty losses is that the total must be more than 10 percent of your adjusted gross income (AGI). You can find this amount for the current year by totaling up your received income and then subtracting any of the applicable deductions on the front page of Form 1040. The amount left over will be your adjusted gross income. As an example, if your AGI is $20,000, you’ll only be able to claim casualty losses that exceed $2,000 in total.
Claiming a casualty loss for a natural disaster – Tax Preparation
Form 4684 is used to list and deduct casualty losses from natural disasters. Taxpayers list the damage amounts on the form and then carry the total over to Schedule A. These losses are considered “miscellaneous deductions” and can only be deducted on Schedule A. Because itemized deductions may not offer as large a tax benefit as the standard deduction, it would be wise for taxpayers to calculate their return using their total itemized deductions, including casualty losses, and then compare it to the result if they use the standard deduction.
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