A Natural Disaster Doesn’t Have to be A Financial Disaster: Claim a Casualty Loss

Usually, when a natural disaster strikes or other casualty loss occurs its bad news for you or your business, but there is a silver lining; you may be able to get a tax break.

As an individual taxpayer, you may be eligible for claiming a casualty loss deduction on your tax return. A casualty loss is the “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.” Examples of deductible casualty losses include earthquakes, fires, theft, tornadoes, or vandalism. Car accidents may also qualify as long as the accident was not caused by “willful negligence or a willful act.” However, damage due to progressive deterioration is not considered a deductible loss such as droughts, termites, or insect damage to trees.

Taxpayers located in Federally Declared Disaster regions are eligible for special tax relief provisions. If you’re unsure if you are located in one of these regions, an ongoing list of disaster areas is available on the Federal Emergency Management Agency website.

Casualty Loss Deductions Limits

As a taxpayer there are two limits to casualty loss deductions for personal assets:

  1. The first $100 per casualty is nondeductible- This applies to each casualty event as a whole. For example, if a tornado damages a house, car, and garage, there is only one $100 reduction.
  2. Casualty losses are only deductible to the extent they exceed 10% of adjusted gross income.

For businesses or income-producing property, there are no limitations for deductible casualty losses.

If you suffer a casualty loss you will need proof; newspaper clippings and police reports that document the event along with “after” pictures of the damages done to property. In addition, while not necessary, “before” pictures are a big help. An appraisal from an independent real estate expert may also be required.