If you’ve been victimized by the vicious tornadoes or floods throughout the South this year, or you have suffered personal casualty losses due to some other natural disaster, you may not have to wait until you file your 2011 tax return to recoup tax benefits.
Strategy: File an amended 2010 return. Reason: The tax law allows you to claim a casualty loss in a federally declared disaster area on the tax return for the prior year (the year before the disaster actually occurred). So you can get a tax refund faster.
You can claim the casualty loss on your 2010 tax return filed by Oct. 17, 2011, if you got an extension for last year’s return.
Here’s the whole story: You’re entitled to deduct a casualty loss for damage caused by an event that is “sudden, unexpected or unusual.” After you’ve subtracted any insurance proceeds you receive relating to the event, you must apply two limits to your personal property losses:
- The deductible amount is reduced by $100 for each casualty or theft event.
- The remainder is deductible only to the extent it exceeds 10% of your AGI.
Example: Your home is severely damaged by a flood. An independent appraiser estimates the damage at $80,000 and the insurance reimbursement you receive is $50,000. For simplicity, let’s say your AGI for 2011 is $100,000.
On these facts, the deduction amount of $30,000 ($80,000 minus $50,000 insurance reimbursement) is reduced by $100 to $29,900. Because 10% of your AGI is $10,000, your deduction is further reduced to $19,900 ($29,900 minus $10,000).
Normally, you’re required to deduct the loss in the year that the casualty event occurs. However, if the loss occurs in a federal disaster area, you can elect to deduct that loss on your tax return for the year immediately before the tax year in which the disaster happened.
If you make this special tax election, you must include a statement with your return specifying: you're taking the deduction in a prior year; the date the disaster occurred; and the city, county and state where your damaged property is located.
Tip: You have 90 days to change your mind. If you choose to revoke the election before you receive a refund, you have 30 days to return it.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/14076/when-mother-nature-hits-hard-obtain-fast-tax-relief-for-losses "