This simple tax guide is offered as sincere help to local flood victims as rebuilding of their lives begin.
1) IRS offers a Casualty Loss Deduction.
Do you qualify, though? IRS provides Publication 584 for individuals and Publication 584- B for businesses to help figure that out. (The rules are different for individuals and businesses so be careful).
IRS defines a casualty as “the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.” Flooding normally fits into this definition.
2) Keep a list of what you lose and your receipts of what you paid, and what you got paid.
In other words, keep good records!In the chaos of crisis, this is easy to overlook.
It is not that hard! Here’s a suggestion—-Try to use only one credit card. Throw all receipts in an big envelope you keep with you at all times. The detail on the credit card statement will be a convenient cross-reference.
The list of loss includes appliances, furniture and personal belongings for individuals. Businesses may have equipment or inventory. Taking IMMEDIATE pictures is good.
Broad categories of what you pay for would be cleanup of debris, cost of replacement of contents inside a house or building, repairs and improvements to a house or building itself.
Records of what you get paid from insurance will need to be kept. IRS will only allow a casualty loss AFTER reimbursement form insurance proceeds.
3) Get Fair Market Values Before and After the Flood.
You’ll need to figure out your loss based on fair market value of the property BEFORE & AFTER the flood!
Try to get an appraisal of the property (contents and building) immediately after the flood BEFORE cleanup. Ideally you want an easy answer to the question “If the property was sold ‘as-is’, what is it worth?”. This is challenging in the real world but is the best support for a casualty loss deduction.
The math for the Casualty Deduction is somewhat cumbersome. You have your work cut out for you.
But you may qualify for a generous deduction!
When it is time to file a tax return, please seek a qualified tax accountant. Make sure the tax accountant understands the Casualty Loss Deduction rules and has filed successfully for a casualty loss in the past.
[Photo is I-44 covered by floodwater at Highway 141, May 2, 2017. (David Carson/St. Louis Post-Dispatch via AP). No copyright infringement intended.]
The author, John Kasperek,EA, wanted to publish some tips for the flood victims from his resources in their time of need as a public service.