Due to the recent flooding in Charleston, clients might be interested in ways they can potentially minimize the effects of flood damage. Hurricane Joaquin affected many taxpayers in South Carolina. Some individuals may have been victims of flood damage resulting in damages to their home and/or personal property. Due to the amount of damage, the federal government has granted tax relief. Below, we will discuss how individuals may be able to benefit by claiming the casualty losses caused by Hurricane Joaquin.
A major benefit is the ability to claim casualty losses resulting from damages caused by Hurricane Joaquin. Due to the fact that Charleston has been federally declared a disaster area, taxpayers have the option to claim a casualty loss on their 2015 tax return. Casualty losses result from damage, destruction or loss of property from an unexpected and unusual event such as a flood, hurricane, tornado, fire or earthquake. Generally, a taxpayer is eligible to deduct casualty losses relating to their home, household items and vehicles on their federal tax return.
Losses are deductible to the extent they are not covered or reimbursed by insurance. Therefore, the loss is reduced by the amount of insurance proceeds. If the amount not covered by insurance is greater than 10% of the taxpayers adjusted gross income (AGI) and itemized, the loss is deductible.
If the amount of the loss is greater than a taxpayer’s income in the current year, the taxpayer has created a net operating loss (NOL). Generally, NOLs are carried back two years and carried forward 20 years. By carrying back a net operating loss, an individual in certain circumstances may be able to create a refund from previous years. An individual, however, may also waive the carryback period and choose to “carry forward” the entire loss. This loss carry forward reduces taxable income in future years, therefore, reducing taxable income.
If you have any questions regarding this issue, please feel free to call us at our office.