Deducting Losses Due to Disasters

Tom Herman for the Wall St Journal writes:   Q: How do the tax rules work on deducting personal losses due to storms and other natural disasters?
—N.H., Brooklyn, N.Y.

A: Our reader is asking about the rules for what tax experts refer to as "casualty and theft losses." If you're a storm victim, don't be surprised if you wind up being able to deduct little or none of your losses, thanks mainly to two high hurdles in the law.
First, you have to reduce each casualty or theft loss by $100.
After that, you can deduct your losses only to the extent they exceed 10% of your adjusted gross income. That's the hurdle that trips up many victims.
If you collect insurance proceeds or other types of reimbursements (such as an employer's emergency disaster fund), you have to subtract those when calculating your loss. "You do not have a casualty or theft loss to the extent you are reimbursed," the Internal Revenue Service says in Publication 547 (available at www.irs.gov).
Despite all this, don't give up hope. Generally, you have to deduct casualty losses only for the year in which they actually happened. But there is a big exception to this rule that might help some victims of recent disasters—such as the extraordinary tornadoes and storms that ripped through Oklahoma or severe storms in Illinois.
If you have a casualty loss in a place designated as a federal disaster area, you can deduct your losses on your federal income-tax return for the year the loss occurred—or on your return for the prior year.
Most taxpayers already filed their returns for 2012. But they can take advantage of this provision by filing an "amended" return. Use IRS Form 1040X.
For a list of federal disaster areas, go to the website of the Federal Emergency Management Agency, or FEMA.