Taxpayers in many states experienced natural disasters in 2011. A casualty loss can result from the damage, destruction, or loss to your property from any sudden, unexpected or unusual event, such as a hurricane, earthquake, wildfire, or flood. Casualty losses are generally deductible in the year the casualty occurred, less ten percent of your adjusted gross income and a $100 per casualty deductible. Additionally, an individual cannot claim a casualty loss deduction for damage to insured property unless a timely insurance claim is filed.

The amount of a deduction is generally determined by the difference in the fair market value of the property before and after the loss, or by the cost of the necessary repairs to restore the property to its original condition. However, the amount of a loss cannot exceed your basis. Even with the destruction of a home or building, the loss is actually not a total loss since the land retains its value.

However, if you have a casualty loss from a federally declared disaster, you can elect to treat the loss as having occurred in 2010, the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or an amended return. The election gives taxpayers the opportunity to maximize their tax savings in the year in which the savings will be greatest.

Recovering from a casualty loss takes time and planning. There are many things to consider, but our office is available to answer your questions. Please call us to discuss your casualty loss tax issues and determine your best options to recovery.

If you have any questions about these or any tax developments, please contact Fred Schutz at 856-722-5300 ext. 201 or Dave Gill at ext. 210.