a. Explain how this loss due to hurricane damage is generally taken as a deducti

Question

a. Explain how this loss due to hurricane damage is generally taken as a deduction on a tax return.

b. What form is used to report this tax deduction?

c. Are there any thresholds that the loss amount must exceed before a deduction can be taken?

d. From time to time, where there is a natural disaster, the IRS makes it easier and faster to take a casualty loss deduction on a tax return. Explain one way that the IRS has made it easier in the past to claim a casualty deduction following natural disasters.

Explanation / Answer

a.Taxpayers who suffer economic loss due to a natural disaster like a hurricane can claim a casualty loss deduction on their federal income tax return. A casualty loss is defined as the damage, destruction or loss of your property from any sudden, unexpected, or unusual event. That includes a hurricane, flood, tornado, fire, earthquake or even volcanic eruption. A casualty loss does not include normal wear and tear or damage that happens over time, like termite damage.

b.To claim a casualty loss on your federal income tax return, you must itemize your deductions using Schedule A, Itemized Deductions. You'll report the loss on line 20 of that form. You'll find it just below the section where you'd report charitable giftsYou'll need to calculate the loss using federal form 4684, Casualties and Thefts . On Page 1, at Part A of that form, you'll report any damage or loss of personal-use property like your home or car. On Page 2, at Part B of that form, you'll report any damage or loss of business or income-producing property.

c. individuals cannot deduct the first $100 of the casualty loss. In addition, an individual may only deduct casualty losses to the extent the total amount of the individual’s losses during the taxable year exceeds 10% of AGI.

The amount of the casualty loss is equal to the lesser of the following:

d.Victims of Hurricanes Harvey, Irma, and Maria get eased casualty loss rules under the Disaster Tax Relief and Airport and Airway Extension Act of 2017. Typically, taxpayers have to itemize their deductions in order to claim casualty losses, but victims of Hurricane Harvey, Irma, and Maria do not have to itemize in order to claim their disaster loss.

Other relief available : The IRS will also waive the usual fees and expedite requests for copies of previously filed tax returns for victims in federally declared disaster areas. Taxpayers should put the federally declared disaster area in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

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