David Hester inspects damages of his home after Hurricane Helene made landfall in Horseshoe Seaside, Florida, on September 28, 2024.
Chandan Khanna | Afp | Getty Photos
After a pure catastrophe, some victims could also be eligible for tax aid — however qualifying could be difficult, tax consultants say.
In late September, Hurricane Helene ravaged components of Florida, Georgia, North Carolina, South Carolina, Virginia and Tennessee. Two weeks later, Hurricane Milton introduced excessive winds, tornados and flooding by means of the center of Florida.
Impacting each insured and uninsured properties, the losses from each storms may quantity to tens of billions of {dollars}.
Sure victims can amend 2023 returns to assert a tax break for latest losses, often called the “casualty loss tax deduction,” in accordance with the IRS. However the calculation is difficult, consultants say.
Extra from Private Finance:
This insurance coverage provision may help with residing prices after a pure catastrophe
Taxpayers in 25 states get additional time to file, however to not pay, 2023 federal taxes
file a householders insurance coverage declare after a pure catastrophe
Here is a breakdown of who qualifies for the casualty loss deduction and the way the tax break works.
calculate the casualty loss deduction
Earlier than 2018, taxpayers who itemize tax breaks may declare the casualty loss deduction for extra kinds of private losses, corresponding to house harm from a fireplace or storm, defined licensed public accountant and legal professional Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.
However the Tax Cuts and Jobs Act of 2017 briefly restricted eligibility. Solely losses in federally declared catastrophe areas will qualify by means of 2025, he defined.
The casualty loss deduction calculation begins with your own home’s “adjusted basis,” or authentic buy value plus the price of sure enhancements, defined Beth Brennan, vice chair for the catastrophe aid tax process drive on the American Institute of Licensed Public Accountants.
You additionally have to understand how a lot the honest market worth declined as a result of catastrophe, she mentioned.
calculate the casualty loss deduction
1. Use the smaller of your adjusted foundation or pre-disaster honest market worth
2. Subtract insurance coverage proceeds and different aid funds
3. Subtract $100 and 10% of adjusted gross earnings
“In practice, you don’t always have an appraisal of your property right before a disaster hits,” so taxpayers can use “safe harbor methods” outlined by the IRS, Brennan mentioned. The IRS secure harbors typically do not depend on value determinations.
Upon getting your own home’s pre-disaster honest market worth, you evaluate it to your adjusted foundation. You may select the smaller of these two numbers earlier than subtracting insurance coverage proceeds and different aid funds.
The ultimate step of the calculation is subtracting a $100 and 10% of your adjusted gross earnings, or AGI, which is all earnings minus sure tax breaks.
“The higher your AGI, the greater the reduction of your loss,” mentioned Luscombe.
Congress approves ‘certified catastrophe losses’
In sure circumstances, “qualified disaster losses” are eligible for particular guidelines, however “that’s driven by Congressional action,” in accordance with Brennan.
When there is a certified catastrophe loss, the $100 rises to $500, there isn’t a 10% AGI restrict and victims can add their loss on high of the usual deduction.
Meaning they’ll declare the deduction even when they do not itemize tax breaks, Brennan mentioned.
Nevertheless, “we haven’t had any qualified disasters, as designated as such by Congress since late 2020,” Brennan mentioned.
“AICPA has been actively advocating for permanent uniform tax relief for all victims of disasters since 2021 — for almost four years now — because we have this inconsistent treatment,” she mentioned.