Historical archive Covering the May 12, 2000 "St. Nazianz Storm" and Recovery  

Storm Loss Tax Advice

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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 --

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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 --

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Pages within this site were last updated 05/26/2001 at 11:10 AM.  All information copyright 2000-2004, all rights reserved.