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Are losses from a natural disaster such as Hurricane Katrina tax-deductible? What forms do I need to file?
Yes, many losses caused by hurricanes -- and other natural disasters such as floods, earthquakes and storms -- can be tax-deductible. And since most areas affected by Hurricane Katrina have been declared federal disaster areas, you'll get some additional tax advantages.
Unfortunately, you'll probably get less money than you expect.
You can deduct the loss only if you itemize your taxes. And you can only deduct any part of the loss that isn't reimbursed by insurance. Then you need to subtract $100 and reduce the loss by 10% of your adjusted gross income. The $100/10% limit does not apply to Hurricane Katrina victims, though.
For help figuring out what you can deduct, see IRS Publication 547 Casualties, Disasters and Thefts. The IRS's Casualty, Disaster and Theft Loss Workbook can help you go through room by room and itemize the damage. For help with your own calculations, see our Casualty Loss Calculator.
These types of losses are generally tax-deductible in the year they occur -- so you'd need to wait until you file your taxes in order to report the loss. But since most counties affected by Hurricane Katrina have been considered federal disaster areas, you get an additional option: you can either deduct the losses when you file your 2005 taxes or amend your 2004 return so you can get the money back faster. To do so, send in Form 1040x with the new information and write "Hurricane Katrina" in red at the top.
For a list of the counties considered federal disaster areas, see Tax Relief for Hurricane Katrina Victims. This IRS article lists 31 counties in Louisiana, 15 in Mississippi and three in Alabama. If you aren't in a federal disaster area but were affected by the hurricane, you may still be able to deduct your unreimbursed losses, but you won't have the option of amending your 2004 return or receiving some tax-filing extensions.
Even if you are eligible, filing an ammended return is not always the best option. You can't write off the disaster loss if you took the standard deduction, for example, and your tax-deductible loss will carry more weight in a year when your income is lower.
Taxpayers affected by Hurricane Katrina and who need help with tax matters can call 1-866-562-5227. Callers to this dedicated telephone line can find out about available tax relief, get free copies of their tax return transcripts and receive Disaster Tax Loss Kits, the IRS says. Callers may also be referred to the Federal Emergency Management Agency's assistance lines for additional help. Extra help and links are also available on the IRS Web site.
For advice on dealing with a financial emergency, as well as links to charities that can help the victims, see our Financial Emergency Kit. And for more information about working with your insurance company, see Calm After the Storm.
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