Good Morning Heritage Park!
I sure some of you have already filed your taxes but for those who have not read this article. It has some information about Hurricane deductions and I found it on Chron.com and it was written by Shannon Buggs. If you had storm damage and insurance really did not help maybe this will help you.
Tax rules allow owners of damaged nonbusiness property to take an itemized deduction for losses caused by a casualty, the insurance term for a sudden, unexpected and unusual event.
Hurricanes, tornadoes and earthquakes qualify as casualties, as do theft, fire, ice storm and shipwreck, and other strange occurrences.
Hurricanes, tornadoes and earthquakes qualify as casualties, as do theft, fire, ice storm and shipwreck, and other strange occurrences.
Casualty losses are subtracted from ordinary income, and, typically, the amount of the deduction is limited by a formula.
First, taxpayers subtract $100 from the total nonbusiness loss, then they subtract 10 percent of their adjustable gross income, the IRS term for taxable income. That calculation gets you to the allowable taxable deduction.
CCH, a tax consultancy based in suburban Chicago, shared this example:
A taxpayer has $50,000 taxable income and a single $25,000 casualty loss.
Ten percent of the taxable income is $5,000, so the taxpayer would subtract $5,100 from the $25,000 loss to arrive at an allowable deduction of $19,900.
The taxable income would be reduced by $19,900, taking it down to $30,100.
Then, to arrive at the tax bill, the appropriate tax bracket would be applied to the taxable income.
Because 88 counties, including Galveston, Brazoria, Harris, Fort Bend and Montgomery have been declared disaster areas by President Bush, you get to choose which tax year you want to apply Hurricane Ike deductions.
By amending your 2007 tax return to add the Ike casualty losses, you don't have to wait several months to claim the deduction on your 2008 return, which is due April 15, 2009.
So now that you know how to take the deduction, you need to know how to calculate the casualty loss.
The IRS defines a personal casualty loss as the smaller of the cost of property (reduced by any insurance reimbursement) or the decline in fair-market value of the property as measured immediately before and after the casualty (reduced by any insurance reimbursement.)
Time for the calculatorLet's break that down.
The cost of the property is what you paid for the item plus any money spent on landscaping, renovations, repairs and other improvements. So the first amount you have to determine is the total amount you've spent on the property minus any insurance claim payment.
Fair-market value is the price the property would sell for to a willing buyer from a willing seller, neither of whom is required to buy or sell, when both know all the relevant facts about the property.
Fair-market value is the price the property would sell for to a willing buyer from a willing seller, neither of whom is required to buy or sell, when both know all the relevant facts about the property.
So the second amount you calculate is what you could have sold the property for before Hurricane Ike damaged it. "Whether it's the day before, the week before, the month before or even a year before, it's not too significant as long as there is some documentation of what the value was before the casualty event," said Mark Luscombe, CCH's principal federal tax analyst.
Third, you determine what the property would sell for after the storm. You may use the cost of repairs to the property as evidence of the loss of value if you prove the repairs are necessary, the cost of them is not excessive and the repairs don't cover more than the damage from the storm.
It's worth it Fourth, subtract the after-fair-market value from the before-fair-market value to get the amount of the decline. Then, reduce the fair-market value decline by the amount collected from insurance to cover the damage.
Finally, compare the first number you got — the total investment minus insurance reimbursement — to the last one — the fair market value decline minus insurance reimbursement.
Whichever is smaller is the amount you can claim as a casualty loss deduction.
I know that's a lot of work, but it's worth doing to get a tax refund as soon as possible. And because of the complexities, this is also a good time to hire a tax preparer to help you claim all the deductions you can.
Columnist Shannon Buggs has completed the personal finance planning certificate program at the University of Houston.
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