Casualty Losses

The President has the authority to declare certain areas as Federal Disaster Areas, which can accelerate a tax refund claim when claiming a casualty loss. Thus, the federal government allows a casualty loss claim to be effective for the tax year immediately preceding the tax year in which the casualty event occurs. Many areas in New York, New Jersey, and Connecticut that were affected by Hurricane Sandy were declared Federal Disaster Areas and, while Hurricane Sandy occurred in tax year 2012, a casualty loss can be claimed for tax year 2011 if the casualty took place in one of those designated areas. The taxpayer has three years from the due date of a return to file an amended return and claim a refund. Importantly, claiming the loss in the prior year is at the election of the taxpayer for disaster area losses. He or she can choose the tax year in which the loss is claimed. If the Hurricane Sandy-loss occurred in a location not declared a disaster area then the loss can be claimed only for the 2012 tax year.