Overview
Hurricane Beryl has caused significant damage across several states, leaving many homeowners and businesses with substantial losses. If you were affected by this disaster, you might be eligible to claim a casualty loss on your tax return. Walker Glantz PLLC, a Texas-based CPA firm, will guide you through what qualifies as a casualty loss, how to claim it, and why accurate records are essential.
Understanding Casualty Losses
A casualty loss occurs when your personal property is damaged or destroyed by a sudden, unexpected, or unusual event. Events like Hurricane Beryl are considered casualties due to their unpredictable and destructive nature.
Here are some key points about casualty losses:
- Qualifying Events: Casualty losses must be due to a sudden event like a hurricane, fire, flood, or theft. Normal wear and tear or gradual deterioration do not qualify
- Federal Disaster Area: Since Hurricane Beryl occurred in an area declared a federal disaster zone, losses incurred are eligible for specific tax relief benefits
- Unreimbursed Losses: You can only deduct losses that are not covered by insurance or other reimbursements
Filing a Claim for Reimbursement
To deduct a casualty loss on your tax return, it’s crucial to file a timely claim with your insurance company. Here’s what you need to know:
Documentation: Keep copies of all correspondence with your insurance company, including claim forms, emails, letters, and responses. This documentation is essential if you need to substantiate your claim during an audit. Even if your policy does not cover certain damages (e.g., flooding), you must file a claim and have documented proof of denial.
Partial Payments: If your insurance company provides a partial reimbursement, make sure to document the amounts received and any remaining unreimbursed losses. This ensures that you accurately report the deductible portion on your tax return.
Calculating Your Loss
Determining the amount of your casualty loss can be complex. Here’s how to approach it:
- Figure the amount of your loss using the following steps:
- Determine your adjusted basis in the property before the casualty or theft
- Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft
- From the smaller of the amounts you determined above, subtract any insurance or other reimbursement you received or expect to receive
Special Considerations and Timing
Here are additional considerations for deducting casualty losses:
- Itemizing Deductions: Casualty losses typically require itemizing deductions. For tax years 2018 through 2025, casualty or theft losses of personal-use property are only deductible if the loss is attributable to a federally declared disaster
- Year of Deduction: Generally, you deduct casualty losses from a federally declared disaster area in the year they occur. For federally declared disasters like Hurricane Beryl, you have the option to report on the tax year immediately before the disaster year (e.g. if the loss occurred in 2024, you could report on your 2023 or 2024 filing)
- Net Operating Loss (NOL): If your casualty loss exceeds your income, it may create an NOL, which can be carried forward to offset income in future years
Accurate record-keeping is very important when dealing with casualty losses. Thorough documentation of claims, denials, repairs, and valuations supports your tax deduction claim and aids in audits. Consulting a tax professional or having a tax expert on your side ensures compliance with IRS regulations and helps maximize your deductions.
Hurricane Beryl has left many dealing with significant property losses. Understanding the rules surrounding casualty loss deductions can help ease the financial burden. At Walker Glantz, we’re committed to helping you navigate these challenges and ensuring you receive all available tax benefits. Contact us today.