Did You Have Damage From Hurricane Irene?

Hurricane Irene caused a lot of property damage due to intense winds and rainfall. Many areas along the East Coast lost power for days and had flooding that has not been seen before. Most importantly, I hope that you were all safe.

Due to damage incurred from the hurricane, you may be able to deduct some of the damage to your property and belongings. These are called casualty losses and the definition is as follows:

A casualty is the damage, destruction, or loss of property resulting from an identifiable event (such as a hurricane, storm, or car accident) that is sudden, unexpected, or unusual.

The rules can be complex when figuring out your deduction. Generally, you can deduct your loss by using this formula: the loss minus insurance proceeds, then subtract $100. Finally, subtract 10% of your adjusted gross income from that figure to arrive at your deductible loss. Also, you need to be an itemizer in order to deduct casualty losses.

Let’s simplify with an example: Your car originally purchased for $30,000 is now worth $15,000. It is completely destroyed by Hurricane Irene, and your insurance reimbursed you $10,000. Your loss is then $15,000 - $10,000 = $5,000. Then subtract $100 to arrive at $4,900. Finally, subtract 10% of your adjusted gross income (let’s assume it is $40,000, then multiply by 10%) of $4,000. Your deductible loss is $900.

The rules are different for business owners. You may even be able to file an amended return from the prior year to receive a refund. As you can see the rules can be complex, so do not hesitate to contact our office with any questions.