Hurricane Katrina casualty losses.

• Author: Laffie, Lesli S.
• Position: FROM THE IRS

According to ITL-2005-119, taxpayers who suffered casualty or theft losses as a result of Hurricane Katrina can take advantage of eased loss limits.

Background: Ordinarily, a deduction for a personal casualty or theft loss is computed by reducing each loss by $100 and aggregate losses by 10% of adjusted gross income. Only the excess over the $100 and 10% limits is deductible. The new law removes these limits for Hurricane Katrina losses, so that the entire amount is deductible.

Eligibility: To qualify, a loss must be attributable to Hurricane Katrina and have occurred after Aug. 24, 2005, in the Presidentially declared disaster area. The $100 and 10% limits still apply to losses not caused by Hurricane Katrina.

Like all casualty and theft losses, Hurricane Katrina losses can only be claimed as an itemized deduction. In addition, no deduction is allowable for any part of a loss for which the taxpayer receives (or expects to receive) insurance or other reimbursement.

Further, losses are generally deductible only in the year the casualty occurred or the theft was discovered. However, because a Hurricane Katrina loss is a disaster loss, it can be deducted on 2004 returns. The $100 and 10% limits will not apply to that loss in redetermining 2004 tax. Taxpayers who have already filed 2004 returns can claim the loss by...