Disaster and Other Losses

How do disasters affect my taxes? 

If you live in a federally declared disaster area, claiming a casualty or disaster loss is certainly allowed for individuals. If you are an individual, casualty losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster (federal casualty loss). “Personal-use property” refers to property other than business property or income-producing property.  

If you receive insurance proceeds, they are tax-free but reduce the loss amount. For losses not insured or not fully insured, you might be able to take a deduction. 

Note: Only losses from federally declared disasters are deductible. No longer deductible are personal property casualty losses from other events, such as theft, car accidents, and vandalism, among others. 

Disaster Loss 

This type of loss is for the headline-making events, like hurricanes, tornadoes, and other kinds of natural disasters. Living in an officially declared federal disaster area could make you eligible for certain tax advantages. If the disaster is bad enough, you may receive federal assistance with housing and cost of living expenses. Payments received from the federal government are nontaxable income. These payments can be used for medical, dental, housing, transportation, personal property, or funeral expenses. 

Any loss you suffer can be deducted for the current year or, if it’s for a prior year, you can amend that year’s return. You also get an automatic 60-day extension to file and pay taxes if you live or work in a federally declared disaster area. 

Note: Unemployment assistance payments received while also receiving disaster relief are considered taxable income. 

Claiming a Loss 

Disaster losses can be deducted even if you do not itemize, since they’re considered above-the-line deductions. 

If the property that sustained a loss was insured, you must file a claim for insurance reimbursement before deducting the loss on your return. For unreimbursed losses of personal property, you can only deduct the amount of loss more than $100 for each incident and then subtract 10% of your adjusted gross income from that amount to calculate your allowable casualty and theft losses for the year. 

Use the Form 4684 screen on your 1040.com return to report disaster losses. Just sign up or log in today to get started—we’ll see you there. 

Also see Keeping Records for Home Tax Breaks 

It’s not too good to be true.