While people may not like to think about it, the threat of a
natural disaster is always looming. No matter how much people prepare and
attempt to protect themselves against these threats, no one can ever be fully
prepared or fully protected.
Fortunately, though, when disaster does strike, there is a
definite right way to handle it in terms of your taxes.
When are Deductions Allowed?
If you suffer at the hands of a natural disaster, you areoften eligible for a deduction related to any losses you suffered as a result
of that natural disaster. The IRS allows deductions for the following types of
incidents:
l Fires
l Theft
l Storms
l Casualties
It is important to note that none of these incidents may
have occurred during a business or trade transaction meant to garner profit.
Limitations on Losses
If your losses qualify for a deduction, remember that each
loss is only allowed to the extent that it exceeds $100. Also, net total losses
for a year can only be deducted to the extent they exceed 10% of your adjusted
gross income.
Make sure that you handle these deductions carefully,
ideally with the help of a professional, so that you do things right and get
the full deduction to which you are entitled.
Exceptions of Note
In addition to the above limitations on deductions related
to a loss incurred by a natural disaster, there are also a few exceptions to be
aware of.
To begin with, due to the Tax Cuts and Jobs Act, you can
only deduct your personal casualty loss if it can be attributed to a federally
declared disaster.
If you cannot attribute your loss to a federally declared
disaster, however, you may be able to deduct to the extent of personal casualty
gains from 2018 to 2025.
With so many loopholes and other things to take notice of,
it’s easy to see that having the right professional tax help is imperative. It
can make the difference between bouncing back from a loss and experiencing
total ruin as a result of one.