Presidential Declared Disaster Areas and Types of property –

A federally Declared disaster Area means any disaster, and the specifically designated land area involved, subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Some of the tax advantages to your casualty being in a designated disaster area are as follows:

1. The loss can be taken either in the year of the loss or the preceding year in order to expedite a refund.

2. Taxpayers may be eligible for non-taxable disaster grants or low interest loans.

3. Specific disasters may cause the extension of filing deadlines.

Tax professionals should be sure to identify returns that contain Federal Disaster Area claims by writing the identification information for the disaster area and the date of the disaster on the top of the front page of the tax return.

Taxpayers who meet the federally declared disaster area guidelines are able to make elections as to when they will claim the loss of their tax return. If they elect to claim the loss on the preceding years original or amended return they should be aware that they may need to recapture some of the deduction if they later receive reimbursements or insurance proceeds. This is true of any casualty or theft loss, but is especially true the sooner after the event that the loss is claimed.

Taxpayers should always calculate an estimate of reimbursements expected prior to claiming a loss. It is often easier to go back and amend the claim of too small a loss and get a bigger refund then it is to have to amend and pay money back or take additional income into your taxes in a following year when the reimbursements are received.

The IRS has a special section of their website set aside to help taxpayers effected by casualties and to identify Presidential Declared Disaster Areas

One of the first things you must determine to make a casualty/theft calculation is the type of property that you are working with. There are typically four types of property involved in casualty/theft losses.

1. Personal use property – This is any property not used for business or investment related purposes, nor in use to make a profit.

2. Business use property – This is property used in a trade or business, including rental property, held for the production of income.

3. Employment use property – This is property that is used in a taxpayer’s employment in which the expenses for such use would be deducted on form 2106 or on the Schedule A Miscellaneous Deductions Subject to 2% of the AGI.

4. Investment use property – This is property that is normally a capital asset and whose disposition would be subject to capital gain/loss rules. This type of property also includes losses due to a Ponzi Scheme, which we will discuss later in this series.

Next week, How to calculate a Casualty Loss.

In accordance with Circular 230 Disclosure