Major flooding in Middle Tennessee has affect thousands of people with property damages estimated well over a billion dollars. Anyone with flood related property damage that is not fully reimbursable by insurance may be entitled to a federal casualty-loss tax deduction.

You May be Eligible for a Refund of 2009 Taxes
Taxpayers residing in counties designated as federally-declared disaster areas (see the list to the right) should consider utilizing a tax provision which permits certain 2010 casualty losses to reduce the 2009 federal income tax liability. Taxpayers who have already filed their 2009 return may still take advantage of these rules by amending their 2009 return.

Rules for 2009
There are some liberal tax provisions that apply to 2009 which are currently not available for the 2010 tax year. If a taxpayer resides in a county that’s been declared a federal disaster area and elects to claim the disaster loss on a 2009 return, the following rules apply:

Restrictions:

1. The property must be personal use property. It is important to note that different rules apply to business and/or income-producing property.
2. The damages must have occurred as a result of the 2010 flood. Any damages not relating to this event are subject to different rules.

General Rules:

1. Disaster losses can be claimed irrespective of whether you reported any itemized deductions on your 2009 tax return.
2. Your income level does not limit the disaster loss deduction.
3. You must file a claim for reimbursement if the property is insured. If a claim is not filed the loss is limited to that which would have been covered had the taxpayer filed a timely insurance claim.
4. The loss, which is equal to the decrease in the property’s value as a result of the 2010 flood, is reduced by any insurance proceeds received.
5. The loss is further reduced by $500.

What You Need to Do:
To help your tax advisor determine the deductibility of the loss, please attempt to document the following if possible:

1. Original cost of the damaged property.
2. Any amounts spent on improving the property prior to the casualty.
3. The decrease in the fair market value of the damaged property.
4. Any insurance reimbursements received as a result of these damages.

If your property is only partially damaged, it is still necessary to establish the value of the property before and after the disaster. In such cases, our clients should consider the need to obtain appraisals of the property.

Closing Remarks

It is our sincere hope that you and your family are safe and sustained no serious damages as a result of the unprecedented flooding in our area. In the event that you have further questions relating to your particular situation, please feel free to reach out to any one of our tax advisors.

Consult with your LBMC Tax Adviser for more information.