Your Finance: Recouping Sandy losses at tax time
It's March, and life has yet to return to normal for those of us whose lives were upended by superstorm Sandy. We are still waiting on insurance settlements and overworked contractors, and trying not to hyperventilate as we see how much Sandy has cost in everything from drywall to new sofas to extra restaurant meals.
There is some consolation: We might be able to recoup some losses at tax time. Residents in areas that suffered through one of the 10 federally declared disaster areas in 2012 can deduct the value of their lost property on their tax returns.
If you were in a declared federal disaster area, you can file an amended return for the 2011 tax year and tuck your Sandy losses into that, or you can claim them on your 2012 return. (Find a complete list of the qualifying storms and areas at the FEMA website, fema.gov/disasters.)
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"Choose whichever will give you a better tax situation," says David Tolleth, an enrolled agent in Holmdel, N.J. That's typically the year in which your income was lower, because under the IRS formula the less you earn, the more losses you can deduct.
File early if you can. You may want to file as soon as possible, but wait until your final insurance settlement comes in, so you can properly account for your losses. "You need to get appraisals," says Tolleth. "You've got to know if you're going to rebuild, and what those expenses will be. And then you need to know how much insurance you're going to get. And if you don't know those things, then you can't file."
You could end up owing money back to the IRS if you claim too many losses prematurely, he said.
If necessary, you can request an extension so your 2012 return won't be due until Oct. 15.
What you can deduct. Losses not reimbursed by insurance can be deducted using IRS Form 4684: Casualties and Thefts. This includes loss of personal property (many flood policies did not cover items such as furniture and clothing) as well as a decrease in the value of your home -- something an appraiser would have to calculate. You can also deduct items excluded by your flood and homeowner's insurance, such as the cost of landscaping improvements, lawn furniture, decks, fences and swimming pools.
Using photographs, receipts or, if necessary, just your memory, make a list of every item lost. Jot down every spoon, dish towel, bottle of makeup and prescription medication. Show the original cost of the item and what it would be worth if you would have tried to sell it the day before the storm.
Partial reimbursements also count. Include on your list items for which you received only partial insurance reimbursement. For example, if you lost a car in the storm, and it was valued at $10,000 but you received only $5,000 from your insurance, you can include the extra $5,000 in your disaster loss statement.
Anything that has been paid for by insurance or FEMA is not deductible, nor is cash that was destroyed in the home. Also, improvements you make to the home during rebuilding cannot be claimed on your return.