What Is Disaster Loss?
Disaster loss is where residents in disaster-prone regions experience losses.
The said losses are caused by phenomena including floods, forest fires, earthquakes, hurricanes, tornadoes, etc.
Usually, the affected regions would have been declared as ‘federal disaster areas by the president. The losses are tagged as tax-deductible, which implies that they are qualified to attract disaster tax reliefs.
All items that are lost but covered by an insurance plan are not eligible for tax deductions. Still, others, including those related to the home, household items, and vehicles, are eligible to be considered for tax reduction.
Victims of natural disasters, including floods, hurricanes, tornadoes, fires, earthquakes, typhoons, and so on- in qualified ‘federal disaster areas as specified by the president- are seen to have experienced disaster loss and provided that they are taxpayers. They are eligible for disaster loss deductions.
A disaster area is considered for federal assistance once it is declared as such by the president.
The Robert T. Stafford Disaster Relief and Emergency Assistance Act mandates the federal government to provide aid to affected states and localities in the case of a declared disaster. Also, the agency that catalogs the updated list of declared disaster areas and the years for which they qualify is the Federal Emergency Management Area(FEMA).
A casualty loss is close and comparable to a qualified disaster loss. The disaster loss attracts more favorable tax reductions.
It is important to note that not all federally declared disasters are qualified declared disasters. Only qualified declared disasters have tax relief packages.
For the sake of proper documentation, the affected individuals must prepare a statement detailing the specific location of the disaster. This must include county, state, and city, the exact date of the incident’s occurrence, the preferable taxable year for the deduction.
There is an option for the tax to be deducted from the previous year. It provides victims with an immediate refund on their losses against only a reduction in the tax liability for the current year.
Photographs of the extent of property damage are valuable proof of the occurrence of the incident. Homeowners who became displaced can still lay claims to a loss.
Disaster Loss Example
Qualified declared disasters include Hurricane Harvey and the California wildfires. They were declared so by the President of the United States. A homeowner that suffered the loss of their property during these events was able to declare this as a disaster loss on their next tax return.« Back to Glossary Index