New Rules for Deducting Disaster Losses
Originally published on October 18, 2016
Updated on August 16th, 2022
The Internal Revenue Service (IRS) has announced new procedures for deducting losses due to disasters such as Hurricane Matthew. The changes affect any section 165(i) elections, revocations and other related actions that can be made or taken on or after October 13, 2016.
Section 165(i) allows taxpaying businesses and individuals to deduct a loss due to a federally declared disaster as a form of casualty loss. With a normal casualty loss, the deduction is generally allowed only for the taxable year in which the loss is sustained (i.e., the year of the disaster). Section 165(i) provides an exception to this rule by allowing the taxpayer to treat the loss as a loss in the preceding year.
The newly announced rules affect the manner of making a section 165(i) election, including documentation required. They also provide an extension of the date by which that election must be made. Affected taxpayers now have six months after the due date of their federal income tax returns for the disaster year (regardless of any extension of time to file).
Click here to read the complete IRS announcement, and consult your tax professional if you have any questions or think the new procedures might affect you.
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