Are you among the thousands with property damage caused by Hurricane Irene? Casualty losses relating to your home, household items and vehicles may be deducted on your Federal income tax return, less the amount reimbursed by insurance. If the property was not completely destroyed, the amount deductable is the lesser of:
- The adjusted basis of your property, or
- The decrease in fair market value of your property as a result of the casualty or theft
The adjusted basis of your property is usually your cost, increased or decreased by the value of improvements or depreciation. Even if your loss deduction is greater than your income, you may have a net operating loss. If that is the case it can be carried forward to subsequent years. You do not have to be in business to have a net operating loss from a casualty.
In addition, taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return either this year, 2011, or last year. Amending last year’s return, 2010, would result in an earlier refund, but a greater tax savings could be achieved by claiming the loss this year, depending on various income factors.