If your property received an extensive amount of damage due to Hurricane Sandy, you may qualify for the Casualty Tax Deduction. I know, it sounds great, right?  Well, as with most good things, there's a catch. There's a lot of work that goes into the process and there are limitations.

damaged_roof_Hurricane Sandy Staten IslandAccording to the Internal Revenue Service, "a casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual." Included among these events are earthquakes, floods, mine cave-ins, sonic booms, storms, and vandalism.

There are two types of casualties: those which occurred in a federally declared disaster area and those which did not. The State of New York was declared by the president as a disaster area.  While this may not sound like good news, it is to taxpayers who wish to apply the Casualty Tax Deduction.

With a normal casualty, taxpayers can only deduct the loss in the year it occurred. With a casualty in a federally declared disaster area, taxpayers are able to deduct it in the year that it occurred, or in the year prior to the disaster. If they choose to do the latter and amend their 2011 tax return, they will receive the deduction more quickly.

For those of you who are interested in applying the Casualty Tax Deduction, you should probably keep reading so that you know what must be done ahead of time. First, you need to itemize your deductions. If you've filed a claim with your insurance company, then you've already taken care of this step. The downside is that whatever amount you received from the insurance company will be exempt from the final deduction.

On the bright side, if your home received flood damage and you do not have flood insurance, the damage can most likely be deducted, since flood damage is usually not included in standard homeowner insurance policies.
A major limitation of the Casualty Tax Deduction is that the deduction must be higher than ten percent of your adjusted gross income and it must be reduced by $100. In other words, the deduction must be higher than ten percent of your adjusted gross income, plus one-hundred dollars.

Another downside is that it is a tax deduction, not a tax credit. For those of you who do not know the difference, a tax deduction reduces taxes by a percentage, while a tax credit will reduce the entire sum of money.

If the Casualty Tax Deduction were a credit, the taxpayer's taxes would be reduced by the final amount when all is said and done. Since it is a tax deduction, the taxpayer's taxes will be reduced by a percentage, though it depends on which tax bracket the taxpayer falls under.So once you have taken all of the above into consideration and figured out the amount of your loss, you may find that it is not as much money as you may have expected.
For more specific information regarding your taxes, and how Hurricane Sandy impacts you and your taxes contact your accountant.

Posted by Anthony Licciardello on


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