It’s that time of year again. News agencies love it. Insurance companies hate it. Innocent folks just trying to live their lives live in fear of it. Fires, hurricanes, tornados, flash floods, mudslides, etc.
Fires seem to last the longest and usually result in the most total loss, but hurricanes and tornados can have an equal level of loss.
You hear about one of these events, see pictures of the devastation, and silently pray for the victims, while thanking God that your stuff hasn’t been affected…yet.
Did you ever wonder why Presidents love to jump quickly on the bandwagon of declaring a “disaster zone?” (They are usually pushed by the local Governor’s to do so.) If your loss occurs in a Presidentially declared Disaster zone, you become eligible to take the disaster loss on your tax return. Otherwise, you get ZERO as a deduction. That applies to individuals and businesses.
NOTE: We are talking about disaster losses. Casualty losses are not limited to Presidentially declared disaster zones. A casualty loss would be anything not caused by a natural disaster. Let’s say you lost your home because of a forest fire. That’s considered a “disaster loss” and can only be deducted if the President declares your loss to be in a disaster zone. BUT, if your house burns down because of gasoline-soaked rags in your garage that got ignited by your water heater burner, that is considered a casualty loss.
For businesses, they get to write off their entire loss, less the insurance proceeds. For individuals, they are limited in three ways. 1st-they must do it through Schedule A Itemized Deductions; 2nd- they must take $100 of the top; 3rd-They can only deduct any amount over 10% of their Adjusted Gross Income. (If a married couple normally has only $10,000 of itemized deductions and usually takes the standard deduction of $27,700, they would need a disaster loss of over $7,700 in order to get any benefit. Or another way of putting it, their disaster loss benefit would only be the amount above $7,700.)
Then there is the timing thing. You may be able to choose which year to deduct the disaster loss. If your loss occurred this year, you could wait until next year when you file your 2024 return to claim the loss, or you could claim it on your 2023 return now. (If you’ve already filed your 2023 return, you can file an amended 2023 return and claim the disaster loss.)
FYI, Congress is considering amending the disaster loss reporting rules to allow a deduction without the requirement of itemizing. The house passed it, but the Senate is stalling it right now.
Have you heard? Judges 20:41 says, “The men of Israel turned, and the men of Benjamin were dismayed; for they saw that disaster had come on them.”
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