How to Deduct Personal and Business Hurricane Losses
In the aftermath of Hurricane’s Harvey, Irma and Maria, many taxpayers are trying to quantify damage, and are asking about the deductibility of personal and business losses incurred during the storms.
Deducting Personal Losses
Generally speaking, personal disaster losses are treated as itemized deductions deductible to the extent total losses exceed 10% of the taxpayer’s adjusted gross income (AGI). Losses are determined by comparing pre and post-disaster fair market values and netting the difference against insurance proceeds received.
On September 29, President Trump signed into law The Disaster Tax Relief and Airport and Airway Extension Act of 2017 to provide temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria. This law makes it easier for storm victims to deduct casualty losses by eliminating the 10% of AGI limitation. For taxpayers that don’t itemize their deductions the new law increases an individual taxpayer’s standard deduction by their net disaster loss. For non-itemizers, the disaster loss portion of their standard deduction is an allowable deduction for alternative minimum tax (AMT) purposes. The new law also allows penalty free access to IRA funds for “qualified hurricane distributions’ and removes AGI based limitations for hurricane related charitable contributions.