There were 43 Federally declared disasters across the country in calendar year 2015. Taxpayers who have sustained a disaster loss in 2015 may under certain circumstances elect to deduct the loss in current year 2015 or, in the immediately preceding year 2014. The election must be made on or before the later of the unextended due date for the current year, which is Monday April 18, 2016 or the extended due date for the previous year, October 15, 2015. So, effected taxpayers only have a few months left to make an election if they haven’t already done so.
Disaster declarations can be found by going to www.fema.gov/disasters. Certain Massachusetts counties are on this list for the 2015 severe winter storm and flooding for the period January 26, 2015 through January 29, 2015. An election to claim a casualty loss in the immediately preceding tax year, with respect to a federally declared disaster area is made by filing a statement to an original return, amended return, or a claim for refund made no later than the unextended due date of the return for the year the casualty occurs.
Generally, personal casualty losses are deductible in the year in which the casualty occurs. It is irrelevant when the property is repaired or replaced. If uncertainty exists when insurance reimbursements will be expected, then the loss is reported in the year the taxpayer can reasonably determine that no additional reimbursement will be paid. The taxpayer does not amend its original return. If you later receive more reimbursement than expected, this extra amount is included in income the year received to the extent a tax benefit was obtained in a prior year from the casualty loss.
Casualty losses occur when there is physical damage to property from an event that is sudden, unexpected, or unusual. The tax code and related regulations allow for some flexibility in the year a loss is reported based on facts and circumstances. The IRS has been known to extend some deadlines for effected taxpayers to make certain elections. Individuals with disaster related losses should be vigilant about their situation and revisit the IRS and FEMA websites for updated information.
Written by Anthony Anchukaitas, CPA, CFP, PFS, Partner