Deducting Flood Losses and Other Storm Damage

If you live in Iowa, you know that it has rained pretty much every day this summer (and that's not much of an exaggeration!).  Many people have suffered water damage from flooded basements, and others have suffered other types of storm damage from hail and even tornadoes.  What are the tax consequences of storm damage?  Can you deduct anything?

As with most things involving tax law, the answer is, yes (maybe).  You are allowed to deduct "casualty and theft" losses on your tax return, but there are certain rules and limitations.

First, you have to calculate the total amount of damage.  Then you subtract out any insurance reimbursements.  From that, you subtract $100.  Then you subtract 10% of your Adjusted Gross Income.  Whatever is left can be claimed as an itemized deduction on your tax return.  If you claim the standard deduction, you can't claim a casualty loss.

Example:
Water causes $10,000 worth of damage to John's basement.  He doesn't have flood insurance, so there's no insurance reimbursement.  His Adjusted Gross Income is $50,000.  John calculates his casualty loss as follows:
     $10,000 loss - $100 - $5,000 (10% of his AGI) = $4,900
John can include $4,900 as an itemized deduction on his tax return.

Generally a casualty loss is claimed on the tax return for the year the casualty occurred.  However, if the area you live in is declared a federal disaster area, you have the choice of claiming it in the year it occurred, or going back and amending your prior-year tax return to claim the loss.