Nebraska Flood Victims Have Options When It Comes to Deducting Casualty Losses

By Carter Johnson

On March 21, 2019, President Donald Trump approved a Major Disaster Declaration for most counties in Nebraska through the Federal Emergency Management Agency (FEMA). This came a couple weeks after severe storms and floods damaged many communities and businesses in eastern Nebraska and the surrounding area.

In addition to public and individual assistance for disaster victims, the federal government also provides some opportunities for tax relief. This relief comes in the form of the ability to deduct casualty losses on your tax return. Casualty losses on personal and business property can decrease your overall taxable income. In some cases, you do not even have to itemize in order to utilize qualified disaster losses. When calculating your casualty losses, it is important to remember casualty losses are calculated after insurance claims are submitted and any related proceeds are collected. Most casualty losses have to exceed some income limitations as well. However, do not let these limitations stop you from exploring your options. If your losses were substantial to you or your business, you may be able to qualify for tax relief.

Taxpayers in a federally declared disaster area have an important decision to make when using their casualty losses:

  1. You can use your casualty losses in the year of the disaster (2019), OR,
  2. You can make an election to use your casualty losses in the year preceding the disaster (2018)

This provides taxpayers with a unique opportunity to take a retrospective approach to their tax savings. For disasters that took place in 2019 (like the floods in Nebraska), the IRS allows taxpayers to wait until October 15, 2020 to make the election to use the casualty losses in a preceding year. This means that the taxpayer has ample time to make this decision. Essentially, you can prepare drafts of your 2019 return with and without using the casualty losses. You can then prepare a version of your 2018 return with the casualty loss included in that year’s return (as if it occurred in 2018). Comparison of the differences in tax savings allows you to decide which year you should reflect the casualty loss.

When making this decision, it is important to gather as much information regarding your casualty losses as possible. The IRS gives disaster victims plenty of time to gather all needed information and make a decision as to how to use that information.

Click here for a map of counties in Nebraska that qualify for individual and public assistance.

If you have any questions regarding casualty losses, please do not hesitate to contact our office.