A recent ABC News report reveals President Barack Obama declared 89 major disasters in 2011, up from the 81 he declared in 2010. Additional statistics from the National Climatic Data Center reveal the natural disasters that pounded the United States this year, ranging from Hurricane Irene to the devastating tornadoes in Joplin, Missouri, caused more billion-dollar damage to the nation than any other year in history.
But what does this mean for taxpayers? Deductions for casualty and theft losses can help individuals who have suffered significant property damage due to natural disasters and other occurrences recover some of the costs. This means that you can write off a portion of the costs for items or property that were lost or damaged by disasters – including hurricanes, earthquakes, tornadoes, floods, fire, volcanic eruption and even theft. However, there are a number of rules attached to this type of deduction and a number of conditions must be met. First, you can only write off the cost of lost or damaged items that are not covered by insurance.
Second, when it comes to determining how much to deduct, the IRS asserts the amount must be the lesser of either the adjusted basis of a taxpayer’s property or the decrease in fair market value of the property as a result of the casualty or theft.
Third, taxpayers must follow a particular formula to determine how much they can deduct. Individuals must start by subtracting $100 from their total loss. Following this calculation, taxpayers must also reduce their loss by 10 percent of their adjusted gross income. For example, if an individual has a $12,000 property loss and makes $100,000 a year, the deduction would play out as follows - 12,000 minus $100 minus another $10,000. After all the reductions have been made, the taxpayer would only be allowed to write off $1,900 of his or her casualty loss. In addition, if the individual incurred losses that equaled less than $10,100, he or she would not be able to write off any of it.
The rules for not only calculating the amount of a write-off, but also determining when to deduct a loss can be tricky. Speaking with a tax preparer
may be the best way for taxpayers to ensure they get the full deduction they need.
About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.Liberty Tax Service
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