With Hurricane season underway and especially in light of last year’s active season, it is important for taxpayers to understand the provisions that may benefit them should any casualty losses occur. Congress enacted special tax relief to help taxpayers and businesses recover from the impact of the following 2017 qualified disasters: Hurricane Harvey, Hurricane Irma, and Hurricane Maria.
This special relief is in the Disaster Relief and Airport and Airway Extension Act of 2017, the Tax Cuts and Jobs Act of 2017, and the Bipartisan Budget Act of 2018.
Generally, a disaster loss is a loss that occurred in a federally declared disaster area that is
attributable to a federally declared disaster. Although a disaster loss is a type of casualty loss, special rules apply that generally provide more favorable tax treatment for “qualified” disaster losses.
Qualified disaster losses are claimed on Form 4684, Casualties and Thefts. The $100 limitation per casualty increases to $500 for net qualified disaster losses. The $500 limitation must be used as a reduction when determining the taxpayer’s qualified disaster loss. Further, the limitation with respect to the 10 percent of adjusted gross income does not apply to net qualified disaster losses. The taxpayer is allowed a deduction for the entire portion of the disaster loss, not covered by insurance or other reimbursement claims, that exceeds $500.