“It was the best of times, it was the worst of times.” When Dickens wrote his Tale of Two Cities, he wrote of more than times in the past, but for times we even share today. My neighbors, friends and family in Tennessee learned this only too well earlier this month, when a “thousand year flood” ripped through homes, business and lives with an unrelenting force. We bent, but we didn’t break. And we got the privilege of helping one another rise from the muck and mess together.
Even our Uncle Sam has been offering help! By declaring middle TN a disaster area, some great tax benefits come into play. The casualty losses we have incurred can be deducted NOW against last year’s income tax returns, rather than waiting until we file our income tax returns in 2011. The IRS will process an amended return claim within several weeks, and give us back some of the taxes we paid in the past to recognize the reduction in our present tax, due to this flood. The first step is to file Form 1040x.
Casualty losses are subject to different treatment, depending upon whether the losses are personal or business in nature. Personal losses are subject to a reduction by $100.00 plus 10% of our adjusted gross income. Business losses are not. Folks who are self-employed might have incurred losses of both types. For example, if someone who operates a business which requires a truck also drives a car for personal use, both vehicles might have been damaged or washed away. The claim would amend last year’s 1040 by deducting the loss incurred on the car as a casualty loss on Schedule A, subject to the $100/10% rule. The truck loss would be claimed against Schedule C, without the reductions.
To our neighbors from Middle TN, and friends around the U.S. who live and/or work in other declared disaster areas, you already have our prayers and encouragement to continue the hard work of recovery with good spirits and hope for the future. Let me also encourage you to file a claim, and get the tax reductions NOW which will help in the rebuilding process.
Tax Advocate One