John Bullis: Special tax rules on disaster losses

The tax law on presidential-declared disaster areas has some special provisions.- Both individuals and businesses that sustain a casualty loss can claim a deduction on their tax returns for damages suffered from fire, floods and other disasters.

If the president has declared a federal disaster, individuals who suffer property losses have a choice of which year to claim their loss for tax purposes.

They can claim the loss in the year of the disaster (say, 2012) or they can claim the loss in the prior year (2011). If they put the loss deduction on the prior year, they might need to file Form 1040X amended U.S. individual income tax return.

There is a website for the Federal Emergency Management Agency that shows the counties that have received federal disaster status and how to file a claim. Try www.fema.gov to get that list.

That website will show when (and if) the president declares a fire or other event as a "declared disaster area." It may take some time before the presidential declaration is posted on the website.

The amount of the loss is the lesser of the adjusted tax basis of the property (another special definition-usually cost less any depreciation expense) or the difference between the property's fair market value before and after the casualty. Then any insurance proceeds or salvage recovery are also deducted to determine the loss.

Form 4684 is used to claim losses from casualties and thefts. It shows on line 17 how the loss (after reducing it for insurance reimbursements) is further reduced by 10 percent of the adjusted gross income. If one year has a lower adjusted gross income (for example, the bottom of first page of Form 1040), that might be the year to choose to claim the loss.

Like most tax rules, this area is full of special provisions. For example, personal casualty losses are deductible as itemized deductions (Form 1040, Schedule A), only to the extent they exceed $100 per casualty and 10 percent of adjusted gross income.

Business losses may qualify for non-recognition of gain under the involuntary conversion rules. Yes, it is possible to have a gain from a fire or other disaster when all of the insurance proceeds, etc., are considered.

Casualty loss is an area you will probably benefit from help by a CPA firm or a very experienced enrolled agent.

Did you hear, "If you want to feel rich, just count all the things money can't buy."

• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.