How to deduct losses from Hurricane Ike accidents

The new laws have recently been enacted that make the rules for deductibility of losses occurring in 2008 and 2009 in disaster areas declared by the federal government such as those caused by Hurricane Ike.

Some of these changes are, when to take the loss deductions, which is eligible to take the loss deduction, the deduction is calculated as the loss, and how to claim the deduction of losses.

When to take the loss deductions

Normally loss deductions are taken during the year they are incurred. However, victims for their losses in a Federally declared disaster area (like Hurricane Ike / Houston), taxpayers may elect to take the loss on either their 2007 or 2008 tax return.

For most taxpayers, it is easier and faster to claim their losses on their 2008 tax return.

However, for some taxpayers, it may be to their advantage to change your 2007 tax return, instead of putting on their 2008 tax return.

The tables on the IRS tax rates are progressive in nature. This means more money you have in taxable income (total income less deductions and personal exemptions), the more money you will pay taxes on the last dollar of income that you earned.

Thus, a deduction could be worth more to you in 2007 compared to 2008, if the income was more in 2007 than in 2008. For example, if you are married submitting a joint statement in 2007, and your taxable income is $ 175,000, the marginal tax rate is 28%. If your taxable income in 2008 is $ 131,450.00, your marginal tax rate is 25%. So, there is a difference of 3% marginal tax rates. If you have suffered a loss of $ 50,000 and deducted the loss victims in 2007 than in 2008, the total tax would be $ 1,500 lower ($ 50,000 x 3% = $ 1,500).

If you decide you want to take the deduction for 2007, you can do so by filing an amended return for 2007 (Form 1040-X). The deadline for submission of an amended return and claiming the victim's loss for 2007 is April 15, 2009.

Who is eligible to take the loss deduction?

All taxpayers who have suffered a loss victim in a Federally declared disaster area like Houston, are entitled to claim their loss, even if only claiming the standard deduction (not non-itemizers presentation Attachment A).

Such as the loss is calculated Casualty

Normally, losses due to accidents are deductible for the amount exceeding 10% of adjusted gross income. This means that the losses which are the first 10% of gross income are not deductible.

However, Hurricane Ike victims may not have limited the loss of 10% of adjusted gross income. Your loss is deductible from the first dollar hurt, after deducting $ 100 per-incident amount.

For example, if you have suffered a loss of $ 50,000 and the gross income was $ 100,000, you can generally deduct only $ 39,900 ($ 50,000 less $ 10,000 (10% AGI of $ 100,000) minus $ 100).

Under the rules for Hurricane Ike, you would be able to deduct $ 49.500 ($ 50,000 minus $ 500). This is a difference of $ 10,000 in deductible expenses, which will save $ 2,500 in tax if you are in the range of 25% marginal tax!

Note that the $ 100 threshold has been increased to $ 500 in 2009, apparently an attempt to limit small claims.

Losses due to accidents refer to the actual physical damage only, net of any reimbursement of the insurance company that you received. Specifically excluded are the costs of evacuation and temporary shelter, while they were repairing your home.

It does not include losses due to accidents and thefts that occur in Federally declared disaster area that are not caused by the disaster. An example of this could be a fire or theft has occurred the loss separate from damage caused by Hurricane Ike.

How to claim the deduction Casualty Loss

Taxpayers who itemize can not deduct their loss by increasing the amount they claim the standard deduction, the amount of victim loss.

Taxpayers who itemize their deductions deduct the loss victim completing Form 4684, "Casualties and Theft" and report the amount calculated in accordance with Schedule A, together with their other deductions detailed....