What's New in Taxes
Check the silver lining if you suffer a disaster
In the old saying, "Every dark cloud has a silver lining," the dark cloud could be a natural disaster and the silver lining could be the Internal Revenue Code. If you are a victim of a natural disaster, such as the recent tornadoes in Oklahoma and Kansas, you may qualify for an income tax deduction called a disaster loss. This gets a different tax treatment than a normal casualty loss.
To qualify for this deduction, the disaster must be the result of a sudden, unexpected, or unusual event which causes you to suffer a financial loss. Additionally, your loss must have occurred in a "disaster area." An area qualifies only if the President of the United States declares it to be in need of federal disaster assistance. To find out if your area is a disaster area, check with your local IRS office.
There are some additional hurdles to clear before you may take a disaster loss deduction. First, your loss must be reduced by any insurance recoveries. Second, the remaining amount is deductible only to the extent that it exceeds 10 percent of your adjusted gross income and $100.
To determine the amount of your loss, you must compare the fair market value of your damaged property before and after the disaster. Normally, the difference (less any insurance recoveries) is your loss, though your loss might be less, depending on your cost in the property.
The tax law allows you to elect to deduct the disaster loss in the year of occurrence or in the previous year. So for a disaster that occurred in 1999, you could amend your 1998 tax return and receive your refund this year, instead of waiting until next year when you file your 1999 return.