Casualty losses are generally deductible only in the
year the casualty occurred. However, if you have a deductible loss
from a disaster in a Presidentially declared disaster area, you can
choose to deduct that loss on your tax return for the year
immediately preceding the year of the casualty. If you have already
filed your return for the preceding year, the loss may be claimed in
the preceding year by filing an amended return, (
Form 1040X (PDF) for Individuals or
Form 1120X
(PDF) for Corporations).
Generally, you must make the choice to use the
preceding year by the due date of the current year's return, without
extensions.
For Example:
The election to deduct a 2005 disaster loss on
your 2004 return must be made on or before the due date (without
extensions) of the 2005 return.
You can revoke this choice within 90 days after
making it by returning to the IRS any refund or credit you received
from making the choice. If you revoke your choice before receiving a
refund, you must return the refund within 30 days after receiving it
for the revocation to be effective.
If your main home, or any of its contents, is
damaged or destroyed as a result of a disaster in a Presidentially
declared disaster area, do not report any gain due to insurance
proceeds you receive for unscheduled personal property, such as
damaged furniture, that was part of the contents of your home. Any
other insurance proceeds received for the home or its contents can
be treated as being received for a single item of property. Any
replacement property you purchase that is similar or related in
service or use to your home or its contents is treated as similar or
related in service or use to that single item of property. You can
choose to recognize gain only to the extent that the insurance
proceeds are more than the cost of your replacement property. If you
choose to postpone any gain from the insurance proceeds you
received, the period for purchasing replacement property is four
years after the close of the first tax year in which any gain is
realized.
Renters qualify to choose relief under these rules
if the rented residence is their main home.
If your home is located in a Presidentially
declared disaster area and your state or local government orders you
to tear it down or move it because it is no longer safe to live in,
the resulting loss in value is treated as a casualty loss from a
disaster. Figure your loss in the same way as any other casualty
loss of personal–use property. This order must be issued within 120
days after the area is declared a disaster area.
If your loss deduction is more than your income,
you may have a net operating loss. You do not have to be in business
to have a net operating loss from a casualty. For more information,
refer to
Publication 536,
Net Operating Losses.
Casualty losses are claimed on
Form 4684
(PDF),
Casualties and Thefts. Section A is used for
personal–use property and Section B is used for business or
income-producing property. If personal-use property was destroyed or
stolen, you may wish to refer to
Publication 584,
Casualty, Disaster, and Theft Loss Workbook, to help you
catalog your property. If the property was business or
income-producing property, refer to
Publication 584B
(PDF),
Business Casualty, Disaster, and Theft Loss Workbook.
The IRS may postpone for up to one year certain
tax deadlines of taxpayers who are affected by a Presidentially
declared disaster. The tax deadlines the IRS may postpone include
those for filing income, estate, gift, generation-skipping transfer,
certain excise, and employment tax returns, paying taxes associated
with those returns, and making contributions to a traditional IRA or
Roth IRA.
If the IRS postpones the due date for filing your
return and for paying your tax and you are affected by a
Presidentially declared disaster area, the IRS may abate the
interest on underpaid tax that would otherwise accrue for the period
of the postponement.
