IRS Offers Tax Relief for Tornado Stricken Areas

Probably the most effective tool for taxpayers is the casualty losses relief, of which most are unaware. Those taxpayers affected in a disaster-declared area have an option of claiming casualty losses on federal tax returns for either this year or last year. If taxpayers claim the losses on their original return (assuming they filed for an extension) or file an amended return to claim it, they could possibly receive any refund faster. However, they are allowed to wait and file losses in future years as they feel comfortable.

Taxpayers may claim and deduct personal property losses not covered by insurance or any other forms of reimbursements such as government/FEMA help. Of course, all casualty losses are subject to 10% of AGI (adjusted gross income) and remain a line item in determining a taxpayer's itemized deduction amount reported on Schedule A, before any true deduction is actually beneficial. For a detailed breakdown of the specific casualty loss rules and instructions, IRS 2010 Form 4684 instructions are very helpful.

The major "need to know "piece of information for filing casualty losses is that the amount of the loss first has to be determined. Therefore, the fair market value (FMV) of the property before and after the loss is needed, as well as your adjusted basis in the property (sometimes known as your cost basis). The FMV before the loss is usually what you could have sold the property for before the loss occurred, while the FMV after the loss in natural disaster cases is usually either zero or at least minimal in value (depending on each situation). Therefore, the amount of casualty loss is the lesser of the FMV decrease or your adjusted (cost) basis in the property before the casualty. All losses must be reduced by any reimbursements before claiming a casualty loss.  

Hopefully, most all disaster relief taxpayers had some form of insurance to viably help them rebuild their lives as soon as possible. However, for those that may not have had insurance or extended insurance on the contents in their homes, the casualty loss filing option is at least a possible benefit those taxpayers greatly need to consider.