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Home, Business Owners Affected By
Tornadoes, Other Natural Disasters Can Get Federal Tax Relief
(RIVERWOODS, ILL., May 7, 1999) Home and
business owners who suffered damage or loss to their
property or business as a result of the series of
tornadoes that tore through the Southern Plains recently
are eligible for tax breaks that will offset those
losses, according to tax and business law publisher CCH
"Taxpayers who live in areas most often affected
by adverse weather tornadoes, earthquakes,
hurricanes should be aware that that they have a
number of important options under the tax law should
disaster strike," said Mark Luscombe, CPA, attorney
and principal federal tax analyst for CCH. "They
should routinely familiarize themselves with the
deductions and keep their records in a safe place to
ensure they have what they need for filing if their home
or business is damaged."
What is Deductible?
In general, the IRS allows certain deductions on an
individual's income tax following a "casualty,"
a loss of property resulting from a sudden, unexpected or
unusual event. A taxpayer can deduct the new amount of
actual property loss resulting from damage to, or
destruction of, property.
In the case of non-business property, the deduction is
limited to losses arising from fire, storm, shipwreck or
other casualty, such as tornadoes, hurricanes,
earthquakes and abnormal flooding.
What Information Must I Provide?
To qualify for a casualty loss deduction, the taxpayer
must prove to the IRS that a loss occurred, and that the
loss was caused by a casualty. To support a claim, the
property owner will need to provide:
- Proof of the nature of the casualty, when it
occurred, and that the loss was a direct
- result of the casualty.
- If the property is depreciable (such as a car),
depreciation allowed or allowable.
- Proof he or she owns the damaged property, or is
legally responsible for it.
- The fair market value of non-business property
just before and after the loss.
- A description of the damaged property and its
- Salvage value of the property.
- The cost or other adjusted basis of the property.
- Amount of insurance or other compensation
received or expected to be received for property
damage. This includes the value of repairs,
cleanup and disaster relief without cost by
agencies or others.
Taxpayers may also use the cost of repairs to the
damaged property as evidence of the loss of value if they
can prove that:
- The repairs are necessary to restore the property
to its pre-casualty condition.
- The repairs do not cover more than the damage by
- The amount spent for such repairs is not
excessive. (Estimates from several reputable
- companies are recommended.)
- The repairs don't make the value of the property
greater than it was before the loss
CCH also urges victims of disasters to consider
damage to the property that is a indirect result of the
casualty. Destruction of doors, windows, plants and
shrubbery are examples.
What's Not Deductible?
Note that these incidental expenses relating to a
casualty are not part of your casualty losses:
- Treatment of personal injury;
- Cleanup costs;
- Temporary housing;
- Car rental.
Determining the Value of Your Property
Valuation of your property is of the utmost importance
when determining the amount of loss sustained in the
casualty. When tax time comes, you will need to be
prepared to provide your tax preparer with evidence
showing the value of your property's pre-casualty value.
Acceptable evidence includes:
- Canceled checks, vouchers, receipts, purchase
contracts and deeds.
- Losses claimed for the destruction of portraits,
heirlooms, keepsakes, etc. must be related to
their market value, not the replacement value or
- If records have been destroyed, get an
appraiser's opinion on the value of the property.
Determining What Tax Year the Loss Should be Taken
Usually, casualty losses are deductible in the year
that they occur, regardless of when the damage is
repaired or the property is restored.
However, if there is an action for reimbursement
against another party, or an insurance claim, the year
when the taxpayer can claim the deduction may be
What if You are in an Official Disaster Area?
Special rules come into play if losses occur in an
area determined by the President of the United States to
be a "Disaster Area." In this case, a property
owner can elect his or her losses in the year immediately
before the tax year when the disaster occurs. This allows
taxpayers who suffered losses early in 1999, for example,
to get some quick relief by applying the loss to their
1998 tax bill if they are operating under a filing
extension and have not yet filed their tax return for
Recent legislation has also provided greater access to
tax-favored mortgage bonds for rebuilding homes in
Presidentially declared disaster areas.
A taxpayer also can claim casualty losses for personal
residences rendered unsafe by reason of certain
disasters. These criteria must be met:
- The residence must be in an area designated a
"disaster area" by the President;
- The residence must have been rendered unsafe as a
residence because of the disaster; and
- The owner is ordered to demolish or relocate the
residence by the state or local government 120
days after the "disaster area" has been
Special Benefits for Business Owners
Small business owners also can take advantage of
"involuntary conversion rules for disaster
damage" that provide further assistance to business
owners whose property was damaged, or involuntarily
converted, in Presidentially declared disasters. Property
used in a business that is damaged by a natural disaster
is eligible for "non-recognition of gain" under
the law, which means that qualified replacement property
can be purchased and the gain can be deferred, offering
tax relief to disaster victims.
"This provides relief for businesses that are
forced to suspend operations for a substantial time due
to the property damage," said Luscombe. "In
other words, if a business loses valuable customers
during the suspension and the business fails, the owners
may want to consider reinvesting their capital in a new
For more detailed information about your taxes during
times of disaster, consult your local tax preparer.
About CCH INCORPORATED
CCH INCORPORATED, located in Riverwoods, Ill., is a
leading provider of tax and business law information,
software and services for accounting and legal
professionals and their clients. The company currently
publishes more than 700 print and electronic publications
in the United States. CCH is a wholly owned subsidiary of
Wolters Kluwer U.S. The CCH web site can be accessed at www.cch.com.
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