HAWKINS, ASH, BAPTIE & COMPANY, LLP
Certified Public Accountants and
Management Consultants
One East Waldo Boulevard
P.O. Box 2020
Manitowoc, WI 54221-2020
Tax Aspects of Storm Damage, relating
to the May 12, 2000 Storm
As Amended June 26, 2000
There are many tax aspects of the storm that went through the Manitowoc
County area on May 12, 2000. As a result of the widespread areas of damage from
wind and hail, you may be able to claim a deduction on your individual or
business tax return.
Any damage to property that resulted directly from the storm and produces a
"loss" is considered to be a "casualty loss" and can be
deducted on your business or personal income tax return.
To determine your deduction, you must first figure your loss. The loss is
calculated as follows:
Determine your adjusted basis in the property before the storm. In
general, the basis of the property is the amount you paid plus any costs
that you paid to improve it less any depreciation taken in prior years.
Determine the decrease in the fair market value of the property as a
result of the storm.
Take the smaller of item (1) or (2) and subtract any amount that you
receive or expect to receive from insurance. This is the amount of your
casualty loss.
If you have property used in your business that is completely destroyed, take
the adjusted basis and subtract out the amount received from insurance, the
difference is your casualty loss.
For personal property that is not used in a trade or business, the amount of
a casualty loss deduction that can be taken is reduced. The deduction is reduced
by $100 per storm and 10% of your adjusted gross income. For example, if your
losses totaled $10,000 and your adjusted gross income is $40,000, the maximum
amount of deduction that can be taken is $5,900. ($10,000 – $100 – (10% of
40,000)) This amount is taken as an itemized deduction on the Form 1040,
Schedule A. NOTE: this limit does not apply to assets used for business or
rental purposes.
Since you are able to deduct casualty losses on your return, you are also
required to include in income any reimbursements that are in excess of your
expenses. For example, if you receive reimbursements for temporary living
expenses that are more than your increase in living expenses, the difference
must be reported as income. The same would be true for property destroyed and
not replaced, the difference between adjusted basis (defined above) and the
reimbursement would be required to be included in net income.
As with any loss, it is important to keep adequate records of the loss. You
should compile an inventory of the items that were destroyed or damaged. This
can be done by taking photographs or making a video and keeping track of your
cost or tax basis.
On June 6, 2000, the Small Business Association declared Manitowoc County a
disaster area for the purpose of issuing low interest loans. This declaration
does not have any tax effects.
If we can be any assistance or if you have any questions, please contact Jon
S. Danforth, CPA, Terry J. Miller, CPA, or Jeff Dvorachek.
Hawkins Ash, Baptie and Company, LLP
One East Waldo Boulevard
Manitowoc, WI 54220
920-684-7128
-- Reprinted with permission --
Original Article Follows, Outdated as of
June 26 but left here for historical purposes........
by Jon S. Danforth, CPA June 19, 2000
There are many tax aspects of the storm that went through the Manitowoc
County area on May 12, 2000. As a result of the widespread areas of damage from
wind and hail and the subsequent declaration of a federal disaster area, you may
be able to claim a deduction on your individual or business tax return.
Any damage to property that resulted directly from the storm and produces a
"loss" is considered to be a "casualty loss" and can be
deducted on your business or personal income tax return. Since the loss occurred
in a federally declared disaster area, you can choose to deduct it on your 2000
tax return or you can amend your 1999 tax return and take the loss immediately.
When deciding whether to amend your return it is important to consider your
marginal tax rate and amount of itemize deductions for the 1999 and 2000 tax
years.
To determine your deduction, you must first figure your loss. The loss is
calculated as follows:
Determine your adjusted basis in the property before the storm. In
general, the basis of the property is the amount you paid plus any costs
that you paid to improve it less any depreciation taken in prior years.
Determine the decrease in the fair market value of the property as a
result of the storm.
Take the smaller of item (1) or (2) and subtract any amount that you
receive or expect to receive from insurance. This is the amount of your
casualty loss.
If you have property used in your business that is completely destroyed, take
the adjusted basis and subtract out the amount received from insurance, the
difference is your casualty loss.
For personal property that is not used in a trade or business, the amount of
a casualty loss deduction that can be taken is reduced. The deduction is reduced
by $100 per storm and 10% of your adjusted gross income. For example, if your
losses totaled $10,000 and your adjusted gross income is $40,000, the maximum
amount of deduction that can be taken is $5,900. ($10,000 – $100 – (10% of
40,000)) This amount is taken as an itemized deduction on the Form 1040,
Schedule A. NOTE: this limit does not apply to assets used for business or
rental purposes.
Since you are able to deduct casualty losses on your return, you are also
required to include in income any reimbursements that are in excess of your
expenses. For example, if you receive reimbursements for temporary living
expenses that are more than your increase in living expenses, the difference
must be reported as income. The same would be true for property destroyed and
not replaced, the difference between adjusted basis (defined above) and the
reimbursement would be required to be included in net income.
As with any loss, it is important to keep adequate records of the loss. You
should compile an inventory of the items that were destroyed or damaged. This
can be done by taking photographs or making a video and keeping track of your
cost or tax basis.
If we can be any assistance or if you have any questions, please contact Jon
S. Danforth, CPA, Terry J. Miller, CPA, or Jeff Dvorachek.
Hawkins Ash, Baptie and Company, LLP
One East Waldo Boulevard
Manitowoc, WI 54220
920-684-7128
-- Reprinted with permission --
