Is your storm damage tax deductible? It depends on how much damage you had, how much coverage you had from insurance, whether or not you itemize your deductions and whether or not there has been a disaster declaration for the event. Here is what the IRS says about storm damage being tax deductible.
THE FEDERAL DISASTER DECLARATION IS SOMETHING NEW
The tax law changed a few years ago. In order for storm damage to be tax deductible you must be in a federally declared disaster area. This rule is supposed to stay in effect until 2025. It might be extended or it’s possible that Congress might change the law sometime in the future. But right now, if you’re not in a federal disaster area your storm losses are not tax deductible.
What’s difficult to realize is that the same storm might create a federal disaster in one state, but not in another state. Meanwhile, the state without the federal disaster declaration might have flooding and severe damage and those losses will not be tax deductible.
THE IRS CHECK LIST FOR STORM DEDUCTIONS
The IRS says that for storm losses to be tax deductible you must live in a federally declared disaster area. And if you are in the federal disaster area you experienced a loss of personal property such as furniture, your car, your home. You will need a list of that property that was damaged or lost — and the best list to have is an inventory of your property.
CREATING AN INVENTORY
After a major disaster such as what Hurricane Ian caused to parts of Florida, you can see why a home inventory is needed. When a home is wiped away by storm surge or high winds it can be impossible to remember everything you had. You can create an inventory by taking photos with your cell phone, or creating lists of your possessions by going room to room. Don’t keep the inventory at home — put it in a bank safe deposit box or send it to a trusted friend or relative in another state where it might survive even if your home doesn’t.
KNOW THE FAIR MARKET VALUE
Part of the process of knowing if you have tax deductible losses and filing a claim with your insurance, is knowing the fair market value of your property. It helps if you kept receipts of major items such as appliances and furniture and electronics.
KNOW YOUR COSTS TO MAKE REPAIRS AND CLEAN UP
You’ll also need to know what the costs are for cleaning up and repairing the damage. You’ll need this information for your insurance claim and for any tax deduction you might claim.
INSURANCE COMES FIRST, THEN THE IRS DEDUCTION
Before you can claim an IRS tax deduction for your storm loss, you’ll have to deal with your insurance company first. If the insurance company covers your losses, you have nothing to deduct on your taxes.
STANDARD DEDUCTION OR ITEMIZED DEDUCTION
If there is a loss that is not covered by insurance, then you have to determine if the loss is more than the value of your standard deduction when you file your taxes. If the losses exceed the value of your standard deduction, you will have to itemize your deductions to use the losses from the storm.
But this is very important. You might be able to deduct losses when using the standard deduction and without itemizing. Here’s what the IRS says:
“In certain federally declared disasters the law allows for a casualty loss to be
taken without having to exceed your standard deduction. In this situation, the net casualty loss can be added to your standard deduction.”
This is why you should consult with a tax professional and be sure you are up to date with what federal disaster orders were issued.
ARE YOUR LOSSES IN EXCESS OF 10% OF YOUR ADJUSTED GROSS INCOME?
There is another condition that must be met in most cases: are your storm losses in excess of 10% of your adjusted gross income? Again, consult with your tax professional because this condition might also change depending on the disaster and the political climate.
THERE ARE OTHER FORMS OF GOVERNMENT HELP
Don’t forget there may be other forms of government help if you are a storm victim, and even if you are not in a federal disaster area. Follow the news. Watch for announcements. Ask questions.
GET A FREE CONSULTATION ABOUT YOUR TAX ISSUES
Remember that we offer a free telephone consultation about your tax issues including questions about your tax debt, missing tax refunds, filing overdue returns, and tax deductions for storm damage. Storm damage might add to your tax debt and financial problems in which case the IRS Fresh Start and the IRS Offer In Compromise Programs might be able to help you. Our free consultation will help you know if you qualify for the IRS Fresh Start Program and the IRS Offer In Compromise Program. If you don’t qualify, there are other programs including payment plans that you could use to resolve your tax debt. We’ll give you information at no charge about how to use these various self-help programs.
The video below will tell you how easy it is to participate in our free consultation about the IRS Fresh Start Program and the IRS Offer In Compromise Program.
Remember, we are standing by to discuss your tax issues and to answer your tax questions. Our tax resolution specialists are ready to discuss the IRS Fresh Start Program and the IRS Offer In Compromise Program and other ways to resolve your tax debt and to ease your tax issues. We can discuss with you questions about deducting losses from a storm.
Here again is the direct phone number to call our senior tax resolution specialist Tom at our office: 949-359-0810