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Tax Breaks

Natural Disaster Losses May Not Be Tax Deductible

But some states are stepping up to help vulnerable homeowners.

In past years, one small comfort for people who suffered the wrath of Mother Nature was that the tax code allowed deductions for losses from a flood, hurricane, tornado, fire or earthquake that weren’t reimbursed by insurance, including your deductible. But if your home is damaged by a natural disaster this year, you may no longer be able to deduct your losses.

Starting in 2018, you can take the deduction only if the loss was caused by a federally declared disaster. You may still qualify for the break if your home is damaged by a major hurricane, for example, but not from a smaller fire or storm. The change was included in the tax overhaul that took effect January 1. Most states follow the federal law, so you may lose out on a state tax break, too. Some states could eventually change their laws to offer the break for losses resulting from a state of emergency declared by the governor, says Rocky Mengle, senior state tax analyst with Wolters Kluwer Tax & Accounting.

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Even if you qualify, the calculation is complicated. You must itemize your tax deductions, which fewer people will do now that the standard deduction was nearly doubled, and you can only deduct losses that exceed $100 plus 10% of your adjusted gross income.

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Your state may offer ways to pay for the cost of preparing for a natural disaster, which will reduce the need for the deduction. Several states, including Alabama, Mississippi and South Carolina, offer “catastrophe savings accounts,” in which you can set aside money to pay your insurance deductible or cover uninsured losses. Contributions are deductible from state taxes. Some states and localities offer grants to help pay for home improvements that will protect your home from disasters. The Strengthen Alabama Homes Program provides grants of up to $10,000 for homeowners in two coastal counties to fortify their roof against storms.

Insurers in many states provide premium discounts for storm-mitigating home improvements, such as storm shutters, using certain roofing materials, or having your home built to a stronger building code.

Several states offer sales tax holidays for emergency-preparedness items. Virginia’s tax holiday is August 3 to 5 and exempts portable generators and several other items from the state’s 5.3% sales tax. (For more information on state sales tax holidays, see What a Deal!)

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