HurricaneSandy was the most devastating and expensive natural disaster to hit the EastCoast.
Ithas been estimated that Sandy will end up causing about $20 billion in propertydamages and $10 billion to $30 billion more in lost business. At least 56 people in the U.S. werekilled. More than 4 million people werewithout power for more than a week.
WhileI was lucky to escape the effects of Sandy, just about every one of my NewJersey friends and clients, no matter where they live in the Garden State, was,or still is effected in some way.
Ifyou are a victim of Sandy, you may be able to deduct losses as an itemizeddeduction on your Schedule A. Worthrepeating – you must be able to itemize to claim any tax deduction for yourlosses.
Casualtylosses are reported on Form 4684 (PDF), Casualties and Thefts, before beingtransferred to Schedule A.
Acasualty is damage, destruction or loss of property that results from anidentifiable sudden, unexpected or unusual event – such as a car accident,earthquake, fire, flood, hurricane, storm, tornado, and the like.
Yourloss is the lessor of –
• theadjusted basis of the property before the casualty or theft, or
• thedecrease in fair market value of the property as a result of the casualty ortheft.
Youcannot deduct the “replacement cost” of an item totally destroyed in acasualty. If you lost an item thatoriginally cost you $500, but will now cost $700 to replace, your deduction forthat item is NOT $700 – it is $500. The“adjusted basis” of a personal item is generally its original cost.
Youmust first reduce the loss by any insurance or other reimbursement you receive,or expect to receive.
Ifyour reimbursement is more than your allowable loss you may have taxableincome. If you receive an unexpectedreimbursement in a subsequent year, or if a reimbursement received after yourreturn claiming the loss has been filed is not what you had expected whencalculating the allowable deduction, you may need to make an adjustment on asubsequent Form 1040.
Nextyou reduce the resulting net amount by $100. This $100 reduction is per incident. If there is only one casualty or theft during the year the reduction is$100. If there are two separateincidents, one casualty and one theft, the total reduction is $200.
Thetotal amount of all net casualty and theft losses for the year, aftersubtracting actual or anticipated reimbursements and the $100 per incident, isthen reduced by 10% of your Adjusted Gross Income (AGI). The remaining amount is what can be deducted.
Ifthe total amount of net casualty and theft losses for 2012 is $9,500 and yourAGI is $105,000, you get no deduction ($9,500 - $10,500 = $0).
Ifyou have a deductible casualty loss in a disaster area, as would be the casewith Sandy, you have the option of claiming the loss on the return for the yearin which the casualty occurs – your 2012 Form 1040 - or the previous year. This means that you do not have to wait untilnext year to get the refund generated by the casualty loss – you can amend your2011 Form 1040 and get a refund now, when you need the money to replace andrepair.
Inthe past the idiots in Congress have passed special tax breaks related tovictims, and those who provide help to victims, of high-profile naturaldisasters. While the idiots in ourcurrent Congress could not act properly and timely on the expired and expiringtax breaks, they may enact some Sandy relief before year-end, which could alterthe rules discussed above.
Perhapsthey will address the “extenders” in the Sandy relief legislation?
Onthe income side, BUSINESS INSIDER tells us that “There Are Some Hidden Tax Benefits for Hurricane Sandy Victims” –
· “Storm-relatedworkers compensation: Workers whoreceive storm-related compensation from their employers won’t face a taxliability. The payments include a number of expenses such as funeral costs.
· Paymentsfrom charities and state programs: Payments fromcharities, state programs and the Federal Emergency Management Agency (FEMA)will also be tax-exempt, according to the IRS.
· 401(k)loans: Taxpayers will be allowed toborrow funds from their 401(k) retirement savings in to make storm repairs, orunder other specific circumstances, without the usual penalties.”
Ofcourse if you were a victim of Sandy you should contact your tax professionalfor more information and advice.
TTFN
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