You can elect to deduct rather than capitalize any qualified disaster expenses that you paid or incurred after 2007.taxmap/pubs/p535-034.htm#en_us_publink1000208914
A qualified disaster expense is an expenditure that:
- Is paid or incurred in connection with a trade or business or with business-related property,
- Is otherwise capitalized, and
- Is for one of the following purposes.
- The abatement or control of hazardous substances that were released because of a federally declared disaster occurring before January 1, 2010,
- The removal of debris from, or the demolition of structures on, real property that is business-related property damaged or destroyed as a result of a federally declared disaster occurring before such date, or
- The repair of business-related property damaged as a result of a federally declared disaster occurring before such date.
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 Relief and Emergency Assistance Act.taxmap/pubs/p535-034.htm#en_us_publink1000208916
Business-related property is property you held (a) for use in a trade or business or for the production of income or (b) that is stock in trade or other property included in inventory or held mainly for sale to customers.taxmap/pubs/p535-034.htm#en_us_publink1000208917
If you made the election to deduct qualified disaster expenses, the deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis had you not made the election. For more information on recapturing the deduction, see Depreciation and amortization under Gain Treated as Ordinary Income in Publication 544.taxmap/pubs/p535-034.htm#en_us_publink1000208918
For more information about expensing of qualified disaster expenses, see Internal Revenue Code section 198A.