[StBernard] IRS Casualty Loss Info
westley at da-parish.com
Sun Oct 30 19:51:46 EST 2005
If you are looking at claiming a casualty loss on your 2004 or 2005 tax
return, be sure to read this and also forward it on to your CPA. Even the
guy I talked to at the IRS didn't understand some of the info in here.
New Tax Law Eases Loss Limitations for Katrina Victims
-IR-2005-119, Oct. 11, 2005
Help for Katrina Victims: Information on Tax Relief, Charitable Issues
Katrina Emergency Tax Relief Act of 2005
WASHINGTON - The Internal Revenue Service today is advising taxpayers who
suffered casualty or theft losses as a result of Hurricane Katrina about a
recent change to the tax law. A new provision lifts certain loss limitations
for Hurricane Katrina victims.
Ordinarily, to figure a deduction for a personal casualty or theft loss, you
must reduce the loss by $100 and also reduce the total of your casualty and
theft losses by 10 percent of your adjusted gross income. Only the excess
over these $100 and 10 percent limits is deductible. The new law removes
these limits for Hurricane Katrina losses, so that the entire amount is
To qualify, a loss must be attributable to Hurricane Katrina and it must
have occurred after August 24, 2005, in the Presidentially-declared disaster
area. The $100 and 10-percent limits still apply to losses that were not
caused by Hurricane Katrina.
Like all casualty and theft losses, Hurricane Katrina losses must be claimed
as an itemized deduction. If you take the standard deduction you cannot
claim them. You cannot claim a deduction for any part of a loss for which
you receive or expect to receive insurance or other reimbursement.
Casualty and theft losses are generally deductible only in the year the
casualty occurred or the theft was discovered. However, because a Hurricane
Katrina loss is a disaster loss, you have the option to deduct it on your
tax return for the previous year, 2004. The $100 and 10-percent limits will
not apply to that loss in redetermining your 2004 tax. If you have already
filed your 2004 return, the loss may be claimed by filing an amended return,
Form 1040X, for 2004.
Claiming the loss on an original or amended return for 2004 will provide you
an earlier refund, but waiting to claim the loss on this year's return could
result in a greater tax saving, depending on your tax situation for 2005. If
you wish to claim the loss for 2004, you generally have until the due date
for filing your 2005 return to do so.
You determine your loss for personal use property by first figuring the
decrease in its fair market value as a result of the casualty or theft. To
do this, you must determine the fair market value of your property both
immediately before and immediately after the casualty or theft (counting the
value of stolen property as zero). An appraisal is the best way to make this
determination, but under certain conditions you can use the cost of cleaning
up and repairing the property as a measure of the decrease in value. Compare
the decrease in fair market value with your adjusted basis in the property.
The adjusted basis is typically the cost of the property and any
improvements. From the smaller of these two amounts, subtract any insurance
or other reimbursement you receive or expect to receive. Generally, you
figure your loss separately for each item, but treat real estate used for
personal purposes, such as your home, as one item (including the land,
buildings, trees and other improvements).
Taxpayers filing or amending their 2004 tax return and whose only casualty
or theft losses to personal use property claimed on that return were caused
by Hurricane Katrina should write in red ink "Hurricane Katrina" at the top
of Form 1040X. They must also attach the 2004 Form 4684, writing "Hurricane
Katrina" on the dotted line next to line 11 and entering "0" on lines 11 and
Taxpayers filing or amending their 2004 tax return and who also have
casualty or theft losses to personal use property not related to Hurricane
Katrina should disregard the caution directing taxpayers to use only one
Form 4684, located above line 13, and complete lines 13 through 18 for two
Forms 4684. The Form 1040X and the first Form 4684 should be prepared as
explained above for Hurricane Katrina losses only. The second Form 4684
should be prepared in the normal manner for all gains and non-Hurricane
Katrina losses. If both Forms 4684 have a loss on line 18, they should carry
the combined losses from that line to Schedule A (Form 1040), line 19. If
there is a gain on line 15 of the second Form 4684, disregard the
instruction to enter it on Schedule D, and instead enter on Schedule A (Form
1040), line 19, the excess of the loss from the first Form 4684 over the
gain on line 15 of the second Form 4684.
For 2005, Form 4684 is being revised to reflect the new law for Hurricane
In addition, if your casualty or theft loss causes your deductions to be
more than your income for the year you claim the loss, you may have a net
operating loss, or NOL. An NOL can be used to lower your tax in an earlier
year, allowing you to get a refund for tax you already paid, or it can be
used to lower your tax in a future year. You do not have to be in business
to have an NOL from a casualty or theft loss. For more information, see
Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and
For more information on deducting disaster losses, see Publication 547,
Casualties, Disasters, and Thefts, available on the IRS website, IRS.gov.
Keep in mind that Publication 547 has not been updated to reflect the new
law. More information on disaster areas can be found at the Federal
Emergency Management Agency (FEMA) website
Taxpayers who have been affected by Hurricane Katrina and have questions can
call the special IRS disaster hotline at 1-866-562-5227.
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