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previous page Previous Page: Publication 547 - Casualties, Disasters, and Thefts (Business and Nonbusiness) - When To Report Gains and Losses
next page Next Page: Publication 547 - Casualties, Disasters, and Thefts (Business and Nonbusiness) - How To Report Gains and Losses
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taxmap/pubs/p547-008.htm#en_us_publink100022734

Disaster Area Losses(p13)


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previous topic occurrence Disaster next topic occurrence

This section discusses the special rules that apply to federally declared disaster area losses (including Kansas and Midwestern disaster area losses). It contains information on when you can deduct your loss, how to claim your loss, how to treat your home in a disaster area, and what tax deadlines may be postponed. It also lists Federal Emergency Management Agency (FEMA) phone numbers. (See Contacting the Federal Emergency Management Agency (FEMA), later.)
A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. It includes a major disaster or emergency declaration under the Act.
taxmap/pubs/p547-008.htm#en_us_publink1000109499

New rules applicable to federally declared disaster losses.(p13)


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The following new rules apply to losses of personal use property attributable to federally declared disasters declared in tax years beginning after 2007 and that occur before 2010. They do not apply to losses in Midwestern disaster areas.
  1. The net disaster loss (defined in (3) below) is not subject to the 10% of adjusted gross income limit.
  2. You can deduct a net disaster loss even if you do not itemize your deductions on Schedule A (Form 1040). You do this by completing Form 4684 and entering your net disaster loss on line 6 of the Standard Deduction Worksheet-Line 40 in the Form 1040 Instructions.
  3. Your net disaster loss is the excess of—
    1. Your personal casualty losses attributable to a federally declared disaster and occurring in a disaster area, over
    2. Your personal casualty gains.
Deposit
A list of the areas warranting public or individual assistance (or both) under the Act for 2008 is available at the Federal Emergency Management Agency (FEMA) web site at www.fema.gov.
taxmap/pubs/p547-008.htm#en_us_publink100022736

When to deduct the loss.(p13)


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You generally must deduct a casualty loss in the year it occurred. However, if you have a casualty loss from a federally declared disaster or a Kansas disaster that occurred in an area warranting public or individual assistance (or both) or from a Midwestern disaster, you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. If you make this choice, the loss is treated as having occurred in the preceding year.
Deposit
Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund.
If you do not choose to deduct your loss on your return for the earlier year, deduct it on your return for the year in which the disaster occurred.
taxmap/pubs/p547-008.htm#en_us_publink100022738

Example.(p13)

You are a calendar year taxpayer. A flood damaged your home this June. The flood damaged or destroyed a considerable amount of property in your town. Your town is located in an area designated by FEMA for public or individual assistance (or both). You can choose to deduct the flood loss on your home on last year's tax return. (See How to deduct your loss in the preceding year, later.)
taxmap/pubs/p547-008.htm#en_us_publink100022739

Disaster loss to inventory.(p13)
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If your inventory loss is from a disaster in an area designated by FEMA for public or individual assistance (or both), you may choose to deduct the loss on your return or amended return for the immediately preceding year. However, decrease your opening inventory for the year of the loss so that the loss will not be reported again in inventories.
taxmap/pubs/p547-008.htm#en_us_publink100022740

Main home in disaster area.(p13)
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If your home is located in a federally declared disaster area, the Kansas disaster area, or Midwestern disaster area, you can postpone reporting the gain if you spend the reimbursement to repair or replace your home. Special rules apply to replacement property related to the damage or destruction of your main home (or its contents) if located in these areas. For more information, see Gains Realized on Homes in Disaster Areas in the Instructions for Form 4684.
taxmap/pubs/p547-008.htm#en_us_publink100022741

Home made unsafe by disaster.(p13)


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If your home is located in a federally declared disaster area, the Kansas disaster area, or Midwestern disaster area, your state or local government may order you to tear it down or move it because it is no longer safe to live in because of the disaster. If this happens, treat the loss in value as a casualty loss from a disaster. Your state or local government must issue the order for you to tear down or move the home within 120 days after the area is declared a disaster area.
Figure your loss in the same way as for casualty losses of personal-use property. (See Figuring a Loss, earlier.) In determining the decrease in FMV, use the value of your home before you move it or tear it down as its FMV after the casualty.
taxmap/pubs/p547-008.htm#en_us_publink100022742

Unsafe home.(p13)
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Your home will be considered unsafe only if both of the following apply.
You do not have a casualty loss if your home is unsafe due to dangerous conditions existing before the disaster. (For example, your house is located in an area known for severe storms.) This is true even if your home is condemned.
taxmap/pubs/p547-008.htm#en_us_publink100022743

Example.(p13)

Due to a severe storm, the President declared the county you live in a federal disaster area. Although your home has only minor damage from the storm, a month later the county issues a demolition order. This order is based on a finding that your home is unsafe due to nearby mud slides caused by the storm. The loss in your home's value because the mud slides made it unsafe is treated as a casualty loss from a disaster. The loss in value is the difference between your home's FMV immediately before the disaster and immediately after the disaster.
taxmap/pubs/p547-008.htm#en_us_publink100022744

How to deduct your loss in the preceding year.(p13)


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If you choose to deduct your loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened, include a statement saying that you are making that choice. The statement can be made on the return or can be filed with the return. The statement should specify the date or dates of the disaster and the city, town, county, and state where the damaged or destroyed property was located at the time of the disaster.
taxmap/pubs/p547-008.htm#en_us_publink100022745

Time limit for making choice.(p13)
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You must make this choice to take your casualty loss for the disaster in the preceding year by the later of the following dates.
taxmap/pubs/p547-008.htm#en_us_publink100022746

Example.(p13)

If you are a calendar year taxpayer, you ordinarily have until April 15, 2009, to amend your 2007 tax return to claim a casualty loss that occurred during 2008.
taxmap/pubs/p547-008.htm#en_us_publink100022747

Revoking your choice.(p13)
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You can revoke your choice within 90 days after making it by returning to the Internal Revenue Service any refund or credit you received from making the choice. However, if you revoke your choice before receiving a refund, you must return the refund within 30 days after receiving it for the revocation to be effective.
taxmap/pubs/p547-008.htm#en_us_publink100022748

Figuring the loss deduction.(p13)
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You must figure the loss under the usual rules for casualty losses, as if it occurred in the year preceding the disaster.
taxmap/pubs/p547-008.htm#en_us_publink100022749

Example.(p13)

A disaster damaged your main home and destroyed your furniture in 2008. This was your only casualty loss for the year. Your home is located in a federally declared disaster area designated by FEMA for public or individual assistance (or both). The cost of your home and land was $134,000. The FMV immediately before the disaster was $147,500 and the FMV immediately afterward was $100,000. You separately figured the loss on each item of furniture (see Figuring the Deduction, earlier) and arrived at a total loss for furniture of $3,000. Your insurance did not cover this type of casualty loss, and you expect no reimbursement for either your home or your furniture.
You choose to amend your 2007 return to claim your casualty loss for the disaster. You figure your deductible net disaster loss as follows:  
    Furnish-
  House ings
 1.Cost$134,000 $10,000
 2.FMV before disaster$147,500 $8,000
 3.FMV after disaster100,000 5,000
 4.Decrease in FMV (line 2 − line 3)$47,500 $3,000
 5.Smaller of line 1 or line 4$47,500 $3,000
 6.Subtract estimated
insurance
-0- -0-
 7.Loss after reimbursement$ 47,500 $3,000
 8.Total loss$50,500
 9.Subtract $100100
10.Loss after $100 rule$50,400
11.Subtract personal
casualty gains
0
12.Amount of deductible net disaster loss$50,400
You can deduct the net disaster loss as an itemized deduction or as part of your standard deduction for 2007.
taxmap/pubs/p547-008.htm#en_us_publink100022750

Claiming a disaster loss on an amended return.(p14)


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If you have already filed your return for the preceding year, you can claim a disaster loss against that year's income by filing an amended return. Individuals file an amended return on Form 1040X.
taxmap/pubs/p547-008.htm#en_us_publink100022751

How to report the loss on Form 1040X.(p14)
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You should adjust your deductions on Form 1040X. The instructions for Form 1040X show how to do this. Explain the reasons for your adjustment and attach Form 4684 to show how you figured your loss. See Figuring a Loss, earlier.
If the damaged or destroyed property was personal use property, you generally can deduct the net disaster loss as an itemized deduction on Schedule A (Form 1040) or as part of your standard deduction. However, if the property meets any of the following conditions, you must itemize your deductions to deduct the loss.
If the property meets any of the above conditions or you want to deduct the net disaster loss as an itemized deduction and you did not itemize your deductions on your original return, you must first determine whether the casualty loss deduction now makes it advantageous for you to itemize. It is advantageous to itemize if the total of the casualty loss deduction and any other itemized deductions is more than your standard deduction. If you itemize, attach Schedule A (Form 1040) and Form 4684 to your amended return. Use the 2008 version of Form 4684 if you are deducting a loss of personal use property in 2007. At the top of the form, cross out "2008" and write "2007". If you are deducting a Kansas disaster area loss, use the 2006 version of Form 4684. At the top of the form, cross out "2006" and write "2007" if you are deducting the loss on your 2007 tax return. Fill out Form 1040X to refigure your tax on the rest of the form to find your refund.
taxmap/pubs/p547-008.htm#en_us_publink100022752

Records.(p14)
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You should keep the records that support your loss deduction. You do not have to attach them to the amended return.
If your records were destroyed or lost, you may have to reconstruct them. Information about reconstructing records is available at www.irs.gov/newsroom/. Type "reconstructing your records" in the search box.
taxmap/pubs/p547-008.htm#en_us_publink100022753

Need a copy of your tax return for the preceding year?(p14)
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It will be easier to prepare Form 1040X if you have a copy of your tax return for the preceding year. If you had your tax return completed by a tax preparer, he or she should be able to provide you with a copy of your return. If not, you can get a copy by filing Form 4506 with the IRS. There is a $57 fee (subject to change) for each return requested. However, if your main home, principal place of business, or tax records are located in a federally declared disaster area, this fee will be waived. Write the name of the disaster in the top margin of Form 4506 (for example, "Hurricane Katrina").
taxmap/pubs/p547-008.htm#en_us_publink100022754

Federal loan canceled.(p14)


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If part of your federal disaster loan was canceled under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, it is considered to be reimbursement for the loss. The cancellation reduces your casualty loss deduction.
taxmap/pubs/p547-008.htm#en_us_publink100022755

Federal disaster relief grants.(p14)


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Do not include post-disaster relief grants received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement Received After Deducting Loss earlier. Unemployment assistance payments under the Act are taxable unemployment compensation.
taxmap/pubs/p547-008.htm#en_us_publink100022756

State disaster relief grants for businesses.(p14)


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A grant that a business receives under a state program to reimburse businesses for losses incurred for damage or destruction of property because of a disaster is not excludable from income under the general welfare exclusion, as a gift, as a qualified disaster relief payment (explained next), or as a contribution to capital. However, the business can choose to postpone reporting gain realized from the grant if it buys qualifying replacement property within a certain period of time. See Postponement of Gain earlier for the rules that apply.
taxmap/pubs/p547-008.htm#en_us_publink100022757

Qualified disaster relief payments.(p14)


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Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). No withholding applies to these payments.
Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses.
Qualified disaster relief payments also include amounts paid to individuals affected by the disaster by a federal, state, or local government in connection with a federally declared disaster.
EIC
Qualified disaster relief payments do not include:
  • Payments for expenses otherwise paid for by insurance or other reimbursements, or
  • Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.
taxmap/pubs/p547-008.htm#en_us_publink100022759

Qualified disaster mitigation payments.(p14)


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Qualified disaster mitigation payments made under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. These are payments you, as a property owner, receive to reduce the risk of future damage to your property. You cannot increase your basis in the property, or take a deduction or credit, for expenditures made with respect to those payments.
taxmap/pubs/p547-008.htm#en_us_publink100022760

Sale of property under hazard mitigation program.(p14)


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Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. You report the gain or deduct the loss on your tax return for the year you realize it. (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier.) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. See Postponement of Gain earlier for the rules that apply.
taxmap/pubs/p547-008.htm#en_us_publink100022761

Gains.(p14)


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Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. For these special rules, see the following discussions.
taxmap/pubs/p547-008.htm#en_us_publink100022762

Postponed Tax Deadlines(p15)


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previous topic occurrence Postponed Tax Deadlines next topic occurrence

The IRS may postpone for up to one year certain tax deadlines of taxpayers who are affected by a federally declared disaster. The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA.
If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB).
taxmap/pubs/p547-008.htm#en_us_publink100022763

Who is eligible.(p15)


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If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement.
taxmap/pubs/p547-008.htm#en_us_publink100022764

Covered disaster area.(p15)
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This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year.
taxmap/pubs/p547-008.htm#en_us_publink100022765

Abatement of interest and penalties.(p15)


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The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines.
taxmap/pubs/p547-008.htm#en_us_publink100022766

Contacting the Federal Emergency Management Agency (FEMA)(p15)


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Contacting the Federal Emergency Management Agency (FEMA)

If you live in an area that was declared a disaster area by the President, you can get information from FEMA by visiting its website at www.fema.gov, or calling the following phone numbers. These numbers are only activated after a federally declared disaster.
taxmap/pubs/p547-008.htm#en_us_publink1000110630

Table 4. Midwestern Disaster Areas

The counties listed below are in Midwestern disaster areas. Disaster losses occurring in these counties on the applicable disaster dates qualify for the waiver of the $100 and 10% of adjusted gross income limits and for the 5-year replacement period.

Applicable Disaster Date*StateAffected Counties —Midwestern Disaster Areas
05/02/2008ArkansasArkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline, and Van Buren.
06/01/2008IllinoisAdams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Greene, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Madison, Mercer, Monroe, Pike, Randolph, Rock Island, St. Clair, Scott, Whiteside, and Winnebago
06/06/2008IndianaAdams, Bartholomew, Benton, Boone, Brown, Clay, Daviess, Dearborn, Decatur, Fountain, Franklin, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jay, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Montgomery, Monroe, Morgan, Ohio, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Switzerland, Tippecanoe, Union, Vermillion, Vigo, Wabash, Washington, and Wayne.
05/25/2008IowaAdair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Carroll, Cass, Cedar, Cerro Gordo, Cherokee, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Lyon, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Palo Alto, Pocahontas, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Taylor, Union, Van Buren, Wapello, Warren, Washington, Wayne, Webster, Winneshiek, Winnebago, Worth, and Wright.
05/22/2008KansasBarber, Barton, Bourbon, Brown, Butler, Chautauqua, Cherokee, Clark, Clay, Comanche, Cowley, Crawford, Decatur, Dickinson, Edwards, Elk, Ellis, Ellsworth, Franklin, Gove, Graham, Harper, Haskell, Hodgeman, Jackson, Jewell, Kingman, Kiowa, Lane, Linn, Logan, Mitchell, Montgomery, Ness, Norton, Osborne, Pawnee, Phillips, Pratt, Reno, Republic, Riley, Rooks, Rush, Saline, Seward, Sheridan, Smith, Stafford, Sumner, Thomas, Trego, Wallace, and Wilson.
06/06/2008MichiganAllegan, Barry, Eaton, Ingham, Lake, Manistee, Mason, Missaukee, Osceola, Ottawa, Saginaw, and Wexford.
06/07/2008MinnesotaCook, Fillmore, Freeborn, Houston, Mower, and Nobles.
05/10/2008MissouriBarry, Jasper, and Newton.
06/01/2008MissouriAdair, Andrew, Atchison, Audrain, Bates, Buchanan, Callaway, Cape Girardeau, Carroll, Cass, Chariton, Christian, Clark, Daviess, Gentry, Greene, Grundy, Harrison, Holt, Howard, Jefferson, Johnson, Knox, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Mercer, Miller, Mississippi, Monroe, Morgan, New Madrid, Nodaway, Pemiscot, Perry, Pettis, Pike, Platte, Polk, Putnam, Ralls, Randolph, Ray, Saline, Schuyler, Scotland, Shelby, St. Charles, St. Genevieve, St. Louis, the Independent City of St. Louis, Scott, Stone, Sullivan, Taney, Vernon, Webster, and Worth.
04/23/2008Nebraska Gage, Johnson, Morrill, Nemaha, and Pawnee.
05/22/2008NebraskaAdams, Blaine, Boone, Boyd, Brown, Buffalo, Burt, Butler, Cass, Chase, Cherry, Colfax, Cuming, Custer, Dawson, Douglas, Dundy, Fillmore, Frontier, Furnas, Gage, Garfield, Gosper, Greeley, Hall, Hamilton, Hayes, Holt, Howard, Jefferson, Johnson, Kearney, Keya Paha, Lancaster, Lincoln, Logan, Loup, Merrick, McPherson, Morrill, Nance, Nemaha, Otoe, Phelps, Platte, Polk, Red Willow, Richardson, Rock, Saline, Sarpy, Saunders, Seward, Sherman, Stanton, Thayer, Thomas, Thurston, Valley, Webster, Wheeler, and York.
06/27/2008NebraskaDodge, Douglas, Sarpy, and Saunders.
06/05/2008WisconsinAdams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Lafayette, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago.
*In some cases, the date will be later due to the continuation of the severe storms, tornadoes, or flooding that began on the date shown above. For more details, go to www.FEMA.gov.
previous pagePrevious Page: Publication 547 - Casualties, Disasters, and Thefts (Business and Nonbusiness) - When To Report Gains and Losses
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 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication