The recent tax law changes eliminated the deduction for personal casualty losses for tax years 2018 through 2025, but did retain a deduction for losses within a federally declared disaster area. As a result of the wild fires in the west, hurricanes and flooding in the east, we’ve had a number of presidentially declared disaster areas this year. If you were an unlucky victim and suffered a loss as a result of a disaster, you may be able to recoup a portion of that loss through a tax deduction. If the casualty occurred within a federally declared disaster area, you can elect to claim the loss in one of two years: the tax year in which the loss occurred or the immediately preceding year. The Boca Raton tax accountants at East Coast Tax Consulting Group can help you determine which year is most advantageous for you.
When to Deduct Your Disaster Loss
By taking the deduction for a 2018 disaster area loss on the prior year (2017) return, you may be able to get a refund from the IRS before you even file your tax return for 2018, the loss year. You have until the unextended due date of the 2018 return to file an amended 2017 return to claim the disaster loss. If you elect to claim the loss on either your 2017 original or amended return, you can generally expect to receive the refund within a matter of weeks, which can help to pay some of your repair costs.
If the casualty loss, net of insurance reimbursement, is extensive enough to offset all of the income on the return, and results in negative income, you may have what is referred to as a net operating loss (NOL). Because tax reform changed how NOLs are treated after 2017 your decision whether to claim the loss in the current year or the prior year will have significant tax ramifications.
- Claimed in 2017 – If the loss is claimed in 2017 and results in an NOL, that NOL is carried back two years and then forward as many as 20 years . Meaning if the loss results in a negative 2017 income the NOL can be carried back to your 2015 return before being carried forward.
- Claimed in 2018 – Tax reform changed the treatment of NOLs and as a result no longer be carried back to prior years, but can be carried forward indefinably. In addition, a NOL occurring in 2018 and subsequent years can only offset 80% of a subsequent year’s taxable income. Determining the more beneficial year in which to claim the loss requires a careful evaluation of your entire tax picture for both years, including filing status, amount of income and other deductions, and the applicable tax rates.
Casualty losses are deductible only to the extent they exceed $100 plus 10% of your adjusted gross income (AGI). Thus, a year with a larger amount of AGI will cut into your allowable loss deduction and can be a factor when choosing which year to claim the loss.
Let Our Boca Raton Tax Accountants Help With Your Disaster Loss Deduction
If you need further information on disaster losses, your particular options for claiming the loss, or if you wish to amend your 2017 return to claim your loss, please call 561-826-9303 to speak with one of our Boca Raton tax accountants. We provide tax preparation, tax planning and tax relief services to taxpayers throughout Florida.