This section discusses the special rules that apply to
Presidentially declared disaster area losses. It contains information
on when you can deduct your loss, how to claim your loss, and the
treatment of your home in a disaster area. It also lists Federal
Emergency Management Agency (FEMA) phone numbers. (See Contacting
the Federal Emergency Management Agency (FEMA), later.)
A Presidentially declared disaster is a disaster that
occurred in an area declared by the President to be eligible for
federal assistance under the Disaster Relief and Emergency Assistance
Act.
When to deduct the loss.
If you have a casualty loss from a disaster that occurred in a
Presidentially declared disaster area, you can choose to deduct that
loss on your return or amended return for the tax year immediately
preceding the tax year in which the disaster happened. If you make
this choice, the loss is treated as having occurred in the preceding
year.
Claiming a qualifying disaster loss on the previous year's return
may result in a lower tax for that year, often producing or increasing
a cash refund.
If you do not choose to deduct your loss on your return for the
earlier year, deduct it on your return for the year in which the
disaster occurred.
Example.
You are a calendar year taxpayer. A flood damaged your home this
June. The flood damaged or destroyed a considerable amount of property
in your town. The town was declared a federal disaster area as a
result of the flood. You can choose to deduct the flood loss on your
home on last year's tax return.
Disaster loss to inventory.
If your inventory loss is from a disaster in an area declared by
the President of the United States to be eligible for federal
assistance, you may choose to deduct the loss on your return or
amended return for the immediately preceding year. However, decrease
your opening inventory for the year of the loss so that the loss will
not be reported again in inventories.
Home made unsafe by disaster.
If your home is located in a federal disaster area, your state or
local government may order you to tear it down or move it because it
is no longer safe to live in because of the disaster. If this happens,
treat the loss in value as a casualty loss from a disaster. Your state
or local government must issue the order for you to tear down or move
the home within 120 days after the area is declared a disaster area.
Figure your loss in the same way as for casualty losses of
personal-use property. (See Figuring a Loss, earlier.) Use
the value of your home before you move it or tear it down as its FMV
after the casualty.
Unsafe home.
Your home will be considered unsafe only if both of the following
apply.
- Your home is substantially more dangerous after the disaster
than it was before the disaster.
- The danger is from a substantially increased risk of future
destruction from the disaster.
You do not have a casualty loss if your home is unsafe due to
dangerous conditions existing before the disaster. (For example, the
location of your house is in an area known for severe storms.) This is
true even if your home is condemned.
Example.
Because of a severe storm, the county you live in is declared a
federal disaster area. Although your home has only minor damage from
the storm, a month later the county issues a demolition order. This
order is based on a finding that your home is unsafe due to nearby mud
slides caused by the storm. The loss in your home's value because the
mud slides made it unsafe is treated as a casualty loss from a
disaster. The loss in value is the difference between your home's FMV
immediately before the disaster and immediately after the disaster.
How to deduct your loss in the preceding year.
If you choose to deduct your loss on your return or amended return
for the tax year immediately preceding the tax year in which the
disaster happened, include a statement saying that you are making that
choice. The statement can be made on the return or can be filed with
the return. The statement should specify the date or dates of the
disaster and the city, town, county, and state where the damaged or
destroyed property was located at the time of the disaster.
Time limit for making choice.
You must make this choice to take your casualty loss for the
disaster in the preceding year by the later of the following dates.
- The due date (without extensions) for filing your income tax
return for the tax year in which the disaster actually
occurred.
- The due date (with extensions) for the return for the
preceding tax year.
Example.
If you are a calendar year taxpayer, you ordinarily have until
April 16, 2001, to amend your 1999 tax return to claim a casualty loss
that occurred during 2000.
Revoking your choice.
You can revoke your choice within 90 days after making it by
returning to the Internal Revenue Service any refund or credit you
received from making the choice. However, if you revoke your choice
before receiving a refund, you must return the refund within 30 days
after receiving it for the revocation to be effective.
Figuring the loss deduction.
You must figure the loss under the usual rules for casualty losses,
as if it occurred in the year preceding the disaster.
Example.
A disaster damaged your home and destroyed your furniture. This was
your only casualty loss for the year. The area was later determined to
warrant federal assistance. The cost of your home and land was
$34,000. The FMV immediately before the disaster was $47,500 and the
FMV immediately afterwards was $15,000. You separately figured the
loss on each item of furniture (see Figuring the Deduction,
earlier) and arrived at a total loss for furniture of $3,000.
Your insurance did not cover this type of casualty loss, and you
expect no reimbursement for either your home or your furniture.
You choose to amend your previous year's return to claim your
casualty loss for the disaster. Your adjusted gross income was
$40,000. You figure your casualty loss as follows:
| | | Furnish- |
| | House |
ings |
| 1. |
Cost |
$34,000 |
$10,000 |
| 2. |
FMV before disaster |
$47,500 |
$8,000 |
| 3. |
FMV after disaster |
15,000 |
5,000 |
| 4. |
Decrease in FMV (line 2 - line 3) |
$32,500 |
$3,000 |
| 5. |
Smaller of line 1 or line 4 |
$32,500 |
$3,000 |
| 6. |
Subtract estimated
insurance |
-0- |
-0- |
| 7. |
Loss after reimbursement |
$32,500 |
$3,000 |
| 8. |
Total loss |
| $35,500 |
| 9. |
Subtract $100 |
| 100 |
| 10. |
Loss after $100 rule |
| $35,400 |
| 11. |
Subtract 10% of $40,000
AGI |
| 4,000 |
| 12. |
Amount of casualty loss deduction |
| $31,400 |
Claiming a disaster loss on an amended return.
If you have already filed your return for the preceding year, you
can claim a disaster loss against that year's income by filing an
amended return. Individuals file an amended return on Form 1040X.
How to report the loss on Form 1040X.
You should adjust your deductions on Form 1040X. The instructions
for Form 1040X show how to do this. Explain the reasons for your
adjustment and attach Form 4684 to show how you figured your loss. See
Figuring a Loss, earlier.
If the damaged or destroyed property was nonbusiness property and
you did not itemize your deductions on your original return, you must
first determine whether the casualty loss deduction now makes it
advantageous for you to itemize. It is advantageous to itemize if the
total of the casualty loss deduction and any other itemized deductions
is more than your standard deduction. If you itemize, attach Schedule
A (Form 1040) along with Form 4684, to your amended return. Fill out
Form 1040X to refigure your tax on the rest of the form to find your
refund.
Records.
You should keep the records that support your loss deduction. You
do not have to attach them to the amended return.
Grants.
You do not have to include grants received under the Disaster
Relief and Emergency Assistance Act in your gross income. However, you
cannot deduct a casualty loss to the extent you are specifically
reimbursed for it by the grant.
Federal loan canceled.
If part of your federal disaster loan was canceled under the
Disaster Relief and Emergency Assistance Act, it is considered to be
reimbursement for the loss. The cancellation reduces your casualty
loss deduction.
Special rules for main home in a disaster area.
Special rules regarding gains may apply to insurance proceeds you
receive because of the damage to or destruction of your main home
(whether owned or rented) or its contents. For a discussion of these
rules, see Gains Realized on Homes in Disaster Areas in the
instructions for Form 4684.
Interest abatement on underpayments in disaster areas.
The IRS will abate interest for the length of the extension period
granted to all taxpayers who meet both of the following requirements.
- They were located in an area declared a disaster area by the
President after 1997.
- They were granted extensions to file income tax returns and
pay income tax for tax years beginning after 1997.
For individuals living in an area declared a disaster area by the
President during 1998, the IRS will also abate interest on income tax
for the length of any extension period granted for filing their 1997
income tax returns and paying income tax for that year.
Contacting the Federal Emergency Management Agency (FEMA)
If you need to contact FEMA for general information, call
1-800-372-4792 or visit their web site at
www.fema.gov.
If you live in an area that was declared a disaster area by the
President, you can get information from FEMA by calling the following
phone numbers. These numbers are only activated after a Presidentially
declared disaster.
- 1-800-462-9029
- 1-800-462-7585 if you are a
TTY/TDD user
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