Tax Law Blog
December 16, 2009 / Tax Court Case Finds for Storm Victims, and Provides Insight to Future Claims
A recent Tax Court case demonstrates how, aside from insurance-related issues wholly separate from this case, accurately evidencing losses from weather damage, by the use of photographs or video, is extremely helpful in establishing the condition and value of the damaged property.
In a recent Tax Court case, two Florida citizens residing within the Hurricane Wilma disaster area (as defined in the GO Zone Act) received damage to their home on October 23, 2005. They contended that the damage was caused by Hurricane Wilma and claimed an uncompensated casualty loss of $69,217 on their 2005 return.
On audit, the IRS challenged whether the total damage was a result of Hurricane Wilma, and subsequently decreased their casualty loss deduction to $27,622 on the ground that the Code Sec. 165(h) $100/10% of AGI limits applied. It determined a $19,277 deficiency and an accuracy-related penalty of $3,650 against the taxpayers.
Under the tax code, an individual may claim a deduction for any property loss sustained during the tax year which is not compensated by insurance, provided the property loss arises from fire, storm, shipwreck, theft or other casualty. As a limitation to this rule, Code Sec. 165(h) provides that these losses are generally deductible only to the extent that (i) they exceed $100, and (2) the losses exceed 10% of an individual's AGI. However, under certain provisions of the Gulf Opportunity Zone Act, these limitations do not apply to casualty losses "which arise in the Hurricane Wilma disaster area on or after October 23, 2005, and which are attributable to Hurricane Wilma." Essentially, if the damage was related to Hurricane Wilma in this case, the total $69,217 could be deducted; if it was not related, the Code Sec. 165(h) limits would apply.
The Tax Court reviewed testimony and pictures to determine that the casualty loss was due to Hurricane Wilma and that the Code Sec. 165(h) limits didn't apply to the taxpayers' casualty loss deduction. In light of this case and recent advice from the IRS Commissioner, citizens in coastal areas should properly evidence their property before and after storms. Annual photographs and videos of your home and belongings at the outset may assist with insurance and other tax-related issues after a fire or storm.