While we never want to see a natural disaster affect an area, when a natural disaster does affect you, it is important to be aware of potential tax deductions for your losses.
Deductions for Storm Damage
Taxpayers who have sustained a casualty loss during the recent storms in our area may deduct that loss on their federal income tax return. The deduction is only available for physical damage or loss to your property. The amount of the casualty loss is the lesser of (a) the drop in value and (b) your basis in the property (usually, your cost). To help substantiate your loss, you should keep all receipts showing all replacement and repair costs. In some cases, appraisals will be needed substantiate the decline in the value of the property. The deductible loss is reduced by any insurance reimbursements and must be greater than 10% of your adjusted gross income.
Except for “disaster losses,” the deduction is taken in the year the loss is incurred (or, for a theft, the year it’s discovered). If your loss is from a disaster in a federally declared disaster area, you can elect to take your loss in the year before it was incurred. This may increase the tax savings from the loss and may entitle you to a refund earlier than if you wait to file the loss year’s return.
To date, the President has declared Baldwin, Jefferson, Lee and Limestone counties in Alabama, as well as Escambia and Santa Rosa Counties in Florida, a federal disaster area. Special tax relief may apply to taxpayers in these areas because of the storms beginning April 28, 2014. For more information on disaster assistance, visit www.disasterassistance.gov.
If you have any questions on how the recent storms will affect your tax situation, please contact your Warren Averett Advisor.