One of the saddest tax breaks available to taxpayers  is the Casualty Loss Deduction. It is a complex process that tax professionals rarely encounter because of the rarity of events tragic enough for these tax breaks to kick in. For many of us on Long Island, especially those on the south shore, Irene hit that mark.

If you incurred substantial damage to your home and personal property, you may be able to recoup substantial money from your income tax filing.  I am able to write from a position of empathy, having incurred a substantial loss as a result of this storm.

A few things to keep in mind before embarking on taking this tax deduction:

·    If you incurred damage to your home, a complex professional appraisal will be needed. The loss you incurred is not simply the cost of repairs. It is the amount of drop in the value of your property because of that damage. Just think about this for a moment. Your house is estimated to need $50k in repairs. If someone were to purchase your house, would they realistically offer you just $50k less that the value before the storm, or make an offer as a "handy man special"?

·    If you incurred damage to personal property such as furniture, appliances, etc., you will need to list the items lost and determine the fair market value for each of those items.

·    Photos, purchase records and any other documentation you have to prove your loss could be critical if your deductions are challenged. Preparation is important.

·    Deductable losses must exceed 10% of your adjusted gross income before you can obtain any tax benefit for your loss.

·   The loss you can deduct is reduced by any insurance proceeds received. 

·    You have the option of taking the write-off in the tax year prior to the casualty. This can be done by filing an amended return. The purpose of this is to put cash in your hand when you need it to recover from the loss, instead of waiting a year to file your current year tax return.

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