What Are Casualty Loss Deductions?
A casualty loss against your home, household items, or vehicle, resulting from property damage or destruction by a sudden, unexpected, or unusual event such as a flood, tornado, fire, etc, can be claimed as an itemized deduction.
You are usually required to report the amount of the loss on Schedule A of Form 1040. For personal property that is not in business use, the casualty loss deduction is calculated by substracting any salvage value and insurance reimbursement from the cost of your property or its fair market value, whichever is smallest.
The resulting amount is then subject to two rules. First, under the $100 rule, a hundred dollars is removed from it. Second, under the 10% rule, it is further reduced by the amount equal to 10% of your adjusted gross income.
The National Disaster Relief Act of 2008, in effect for disasters that occurred after the last day of 2007 but before January 1st, 2010, makes substantial changes to the procedure outlined above:
First, it allows taxpayers who do not itemize to claim the deduction
Second, it changes the amount, stipulated by the $100 rule, by which the taxpayer must reduce his casualty loss amount from $100 to $500. Note that this benefit is rescinded after December 31st, 2009.
Finally, it removed the 10% of AGI limitation and allows taxpayers subject to a disaster to deduct the full amount of their net disaster losses.
If you live in the Midwest, remember that not all provisions of the National Disaster Relief Act may apply to your individual case. Please consult your PriorTax professional to see which do.