Have you experienced any losses caused by severe storms, floods, hurricanes, or other disasters? If you have, you may be able to deduct those losses on your tax return if you live in a federally declared disaster area.
Federal Disaster Areas
When a state or territory is impacted by a disaster, the Federal Emergency Management Agency (FEMA) may declare the impacted regions as a federal disaster area. Disaster areas are determined by the President of the United States that warrant assistance under the Stafford Act.
Effect on Tax Deadlines
Taxpayers affected by a federally declared disaster may have tax deadlines postponed by the IRS. Postponed deadlines may include filing and paying income, excise, and employment taxes, and making contributions to traditional or Roth IRAs. If a deadline is postponed, the IRS will announce the postponement on its website. Taxpayers eligible for the postponements include:
- Taxpayers whose main home is located in a federal disaster area.
- Any business or sole proprietor whose principal place of business is located in a federal disaster area.
- Any relief worker associated with a recognized government or philanthropic organization assisting in the federal disaster area.
- The spouse on a joint return with a taxpayer who is eligible for postponements.
- More eligible taxpayers can be found in IRS Publication 547.
What losses can you report on your tax return?
There are three types of deductible losses associated with federal disaster areas. These are federal casualty losses, disaster losses, and qualified disaster losses. A federal casualty loss is any casualty or theft loss of personal-use property attributable to a federally declared disaster. A disaster loss is any loss — personal-use property or not — that is attributable to a federally declared disaster and is in an area eligible for assistance declared by the President. A qualified disaster loss is a casualty or theft loss of personal-use property that is attributable to specific disasters. These disasters are:
- A major disaster declared by the President under section 401 of the Stafford Act in 2016.
- Hurricanes Harvey, Irma, and Maria.
- The California wildfires of 2017 and January 2018.
- A major disaster that occurred in 2018 and before December 21, 2019, that was declared by the President.
- A major disaster that was declared by the President from January 1, 2020, and February 25, 2021.
- Losses caused by COVID-19 are not qualified losses.
A current list of areas warranting public or individual assistance is available on the FEMA website at FEMA.gov/Disasters.
When should you deduct the loss(es)?
Generally, you should deduct the losses in the disaster year. The disaster year is the tax year in which the loss attributable to a disaster occurred. The exception to this rule is if you have a casualty loss in an area that warranted public or individual assistance. In these cases, you may elect to deduct that loss on either your current year return or your preceding year return. If you elect to deduct the loss on your preceding year return, then you have until 6 months after the disaster year tax return is due to file an amended return for the preceding year with the loss. For example, if a disaster loss occurred in tax year 2024, you would have until October 15th, 2025, to file an amended 2023 return with the reported loss.
Conclusion
If you incurred any losses due to a disaster in a federally declared disaster area, you may be able to deduct those losses and reduce your tax liability for the tax year in which the disaster occurred. If you are uncertain about the tax treatment of your losses, contact us.
Written by Bradley Kimmel, Staff Accountant
Sources
https://www.irs.gov/pub/irs-pdf/p3067.pdf
https://www.irs.gov/pub/irs-pdf/p547.pdf
https://www.irs.gov/newsroom/tax-relief-in-disaster-situations