Publication 547 - Casualties,disasters,and Thefts

Claiming a qualifying disaster loss on

How to deduct your loss in the preceding

8. Total loss . . . . . . . . . . . . . . .

$50,500

TIP

the previous year’s return may result in

year. If you choose to deduct your loss on your

9. Subtract $100 . . . . . . . . . . . .

100

a lower tax for that year, often produc-

return or amended return for the tax year imme-

10. Loss after $100 rule . . . . . . . .

$50,400

ing or increasing a cash refund.

diately preceding the tax year in which the disas-

11. Subtract 10% of

ter happened, include a statement saying that

$71,000 AGI . . . . . . . . . . . . .

7,100

If you do not choose to deduct your loss on

you are making that choice. The statement can

12. Amount of casualty loss

your return for the earlier year, deduct it on your

be made on the return or can be filed with the

deduction . . . . . . . . . . . . . . .

$43,300

return for the year in which the disaster oc-

return. The statement should specify the date or

curred.

dates of the disaster and the city, town, county,

Claiming a disaster loss on an amended

and state where the damaged or destroyed

return. If you have already filed your return for

Example. You are a calendar year tax-

property was located at the time of the disaster.

the preceding year, you can claim a disaster loss

payer. A flood damaged your home this June.

against that year’s income by filing an amended

The flood damaged or destroyed a considerable

Time limit for making choice. You must

return. Individuals file an amended return on

amount of property in your town. The President

make this choice to take your casualty loss for

Form 1040X.

declared the area that includes your town a

the disaster in the preceding year by the later of

federal disaster area as a result of the flood. You

the following dates.

How to report the loss on Form 1040X.

can choose to deduct the flood loss on your

You should adjust your deductions on Form

•

The due date (without extensions) for filing

home on last year’s tax return. (See How to

1040X. The instructions for Form 1040X show

your income tax return for the tax year in

deduct your loss in the preceding year, later.)

how to do this. Explain the reasons for your

which the disaster actually occurred.

adjustment and attach Form 4684 to show how

Disaster loss to inventory. If your inven-

•

you figured your loss. See Figuring a Loss, ear-

The due date (with extensions) for filing

tory loss is from a disaster in an area declared

lier.

the return for the preceding tax year.

by the President of the United States to be

If the damaged or destroyed property was

eligible for federal assistance, you may choose

nonbusiness property or employee property and

to deduct the loss on your return or amended

Example. If you are a calendar year tax-

you did not itemize your deductions on your

return for the immediately preceding year. How-

payer, you ordinarily have until April 15, 2003, to

original return, you must first determine whether

ever, decrease your opening inventory for the

amend your 2001 tax return to claim a casualty

the casualty loss deduction now makes it advan-

year of the loss so that the loss will not be

loss that occurred during 2002.

tageous for you to itemize. It is advantageous to

reported again in inventories.

itemize if the total of the casualty loss deduction

Revoking your choice. You can revoke

and any other itemized deductions is more than

your choice within 90 days after making it by

Home made unsafe by disaster. If your

your standard deduction. If you itemize, attach

returning to the Internal Revenue Service any

home is located in a Presidentially declared dis-

Schedule A (Form 1040) and Form 4684 to your

refund or credit you received from making the

aster area, your state or local government may

amended return. Fill out Form 1040X to refigure

choice. However, if you revoke your choice

order you to tear it down or move it because it is

your tax on the rest of the form to find your

before receiving a refund, you must return the

no longer safe to live in because of the disaster.

refund.

refund within 30 days after receiving it for the

If this happens, treat the loss in value as a

revocation to be effective.

Records. You should keep the records that

casualty loss from a disaster. Your state or local

support your loss deduction. You do not have to

government must issue the order for you to tear

Figuring the loss deduction. You must fig-

attach them to the amended return.

down or move the home within 120 days after

ure the loss under the usual rules for casualty

the area is declared a disaster area.

losses, as if it occurred in the year preceding the

Grants. You do not have to include grants

Figure your loss in the same way as for

disaster.

received under the Disaster Relief and Emer-

casualty losses of personal-use property. (See

gency Assistance Act in your gross income.

Example. A disaster damaged your home

Figuring a Loss, earlier.) In determining the de-

However, you cannot deduct a casualty loss to

and destroyed your furniture. This was your only

crease in FMV, use the value of your home

the extent you are specifically reimbursed for it

casualty loss for the year. The President later

before you move it or tear it down as its FMV

by the grant.

declared the area to be eligible for federal assis-

after the casualty.

tance. The cost of your home and land was

Federal loan canceled. If part of your federal

Unsafe home. Your home will be consid-

$134,000. The FMV immediately before the dis-

disaster loan was canceled under the Disaster

ered unsafe only if both of the following apply.

aster was $147,500 and the FMV immediately

Relief and Emergency Assistance Act, it is con-

•

afterward was $100,000. You separately figured

sidered to be reimbursement for the loss. The

Your home is substantially more danger-

the loss on each item of furniture (see Figuring

cancellation reduces your casualty loss deduc-

ous after the disaster than it was before

tion.

the Deduction, earlier) and arrived at a total loss

the disaster.

for furniture of $3,000. Your insurance did not

•

Qualified disaster relief payments. Qualified

The danger is from a substantially in-

cover this type of casualty loss, and you expect

disaster relief payments received in tax years

creased risk of future destruction from the

no reimbursement for either your home or your

ending after September 10, 2001, are not in-

disaster.

furniture.

cluded in the income of individuals. These pay-

You choose to amend your previous year’s

You do not have a casualty loss if your home

ments are not subject to income tax,

return to claim your casualty loss for the disas-

self-employment tax, or employment taxes (so-

is unsafe due to dangerous conditions existing

ter. Your adjusted gross income on your previ-

cial security, Medicare, and federal unemploy-

before the disaster. (For example, your house is

ous year’s return was $71,000. You figure your

ment taxes). No withholding applies to these

located in an area known for severe storms.)

casualty loss as follows:

payments.

This is true even if your home is condemned.

Qualified disaster relief payments include

Furnish-

Example. Due to a severe storm, the Presi-

payments you receive (regardless of the source)

House

ings

dent declared the county you live in a federal

for the following expenses.

disaster area. Although your home has only mi-

1. Cost . . . . . . . . . . . . $134,000

$10,000

•

Reasonable and necessary personal, fam-

nor damage from the storm, a month later the

2. FMV before disaster

$147,500

$8,000

ily, living, or funeral expenses incurred as

county issues a demolition order. This order is

3. FMV after disaster . . 100,000

5,000

a result of a Presidentially declared disas-

based on a finding that your home is unsafe due

4. Decrease in FMV

ter.

to nearby mud slides caused by the storm. The

(line 2 − line 3) . . . . . $47,500

$3,000

•

loss in your home’s value because the mud

Reasonable and necessary expenses in-

5. Smaller of line 1 or

slides made it unsafe is treated as a casualty

curred for the repair or rehabilitation of a

line 4 . . . . . . . . . . . $47,500

$3,000

loss from a disaster. The loss in value is the

personal residence due to a Presidentially

6. Subtract estimated

difference between your home’s FMV immedi-

declared disaster. (A personal residence

insurance . . . . . . . .

– 0 –

ately before the disaster and immediately after

can be a rented residence or one you

7. Loss after

the disaster.

reimbursement . . . . . $47,500

$3,000

own.)

Page 12

Publication 547 - Casualties,disasters,and Thefts - 2002 Page 12

Related Articles

Related forms

Related Categories