This section discusses the special rules that apply to Presidentially declared disaster area losses. It contains information on when you can deduct your loss, how to claim your loss, how to treat your home in a disaster area, and what tax deadlines may be postponed. It also lists Federal Emergency Management Agency (FEMA) phone numbers. (See Contacting the Federal Emergency Management Agency (FEMA), later.)

A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

When to deduct the loss. If you have a casualty loss from a disaster that occurred in a Presidentially declared disaster area, you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. If you make this choice, the loss is treated as having occurred in the preceding year.

Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund.

If you do not choose to deduct your loss on your return for the earlier year, deduct it on your return for the year in which the disaster occurred.

Example. You are a calendar year taxpayer. A flood damaged your home this June. The flood damaged or destroyed a considerable amount of property in your town. The President declared the town a federal disaster area as a result of the flood. You can choose to deduct the flood loss on your home on last year's tax return.

Disaster loss to inventory. If your inventory loss is from a disaster in an area declared by the President of the United States to be eligible for federal assistance, you may choose to deduct the loss on your return or amended return for the immediately preceding year. However, decrease your opening inventory for the year of the loss so that the loss will not be reported again in inventories.

Home made unsafe by disaster. If your home is located in a Presidentially declared disaster area, your state or local government may order you to tear it down or move it because it is no longer safe to live in because of the disaster. If this happens, treat the loss in value as a casualty loss from a disaster. Your state or local government must issue the order for you to tear down or move the home within 120 days after the area is declared a disaster area.

Figure your loss in the same way as for casualty losses of personal-use property. (See Figuring a Loss, earlier.) Use the value of your home before you move it or tear it down as its FMV after the casualty.

Unsafe home. Your home will be considered unsafe only if both of the following apply.

• Your home is substantially more dangerous after the disaster than it was before the disaster.
• The danger is from a substantially increased risk of future destruction from the disaster.

You do not have a casualty loss if your home is unsafe due to dangerous conditions existing before the disaster. (For example, your house is located in an area known for severe storms.) This is true even if your home is condemned.

Example. Because of a severe storm, the President declared the county you live in a federal disaster area. Although your home has only minor damage from the storm, a month later the county issues a demolition order. This order is based on a finding that your home is unsafe due to nearby mud slides caused by the storm. The loss in your home's value because the mud slides made it unsafe is treated as a casualty loss from a disaster. The loss in value is the difference between your home's FMV immediately before the disaster and immediately after the disaster.

How to deduct your loss in the preceding year. If you choose to deduct your loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened, include a statement saying that you are making that choice. The statement can be made on the return or can be filed with the return. The statement should specify the date or dates of the disaster and the city, town, county, and state where the damaged or destroyed property was located at the time of the disaster.

Time limit for making choice. You must make this choice to take your casualty loss for the disaster in the preceding year by the later of the following dates.

• The due date (without extensions) for filing your income tax return for the tax year in which the disaster actually occurred.
• The due date (with extensions) for the return for the preceding tax year.

Example. If you are a calendar year taxpayer, you ordinarily have until April 15, 2002, to amend your 2000 tax return to claim a casualty loss that occurred during 2001.

Revoking your choice. You can revoke your choice within 90 days after making it by returning to the Internal Revenue Service any refund or credit you received from making the choice. However, if you revoke your choice before receiving a refund, you must return the refund within 30 days after receiving it for the revocation to be effective.

Figuring the loss deduction. You must figure the loss under the usual rules for casualty losses, as if it occurred in the year preceding the disaster.

Example. A disaster damaged your home and destroyed your furniture. This was your only casualty loss for the year. The area was later determined to warrant federal assistance. The cost of your home and land was $134,000. The FMV immediately before the disaster was $147,500 and the FMV immediately afterward was $100,000. You separately figured the loss on each item of furniture (see Figuring the Deduction, earlier) and arrived at a total loss for furniture of $3,000. Your insurance did not cover this type of casualty loss, and you expect no reimbursement for either your home or your furniture.

You choose to amend your previous year's return to claim your casualty loss for the disaster. Your adjusted gross income on your previous year's return was $71,000. You figure your casualty loss as follows:

		House	Furnishings
1.	Cost	$134,000	$10,000
2.	FMV before disaster	$147,500	$8,000
3.	FMV after disaster	100,000	5,000
4.	Decrease in FMV (line 2 - line 3)	$47,500	$3,000
5.	Smaller of line 1 or line 4	$47,500	$3,000
6.	Subtract estimated insurance	-0-	-0-
7.	Loss after reimbursement	$47,500	$3,000
8.	Total loss		$50,500
9.	Subtract $100		100
10.	Loss after $100 rule		$50,400
11.	Subtract 10% of $71,000 AGI		7,100
12.	Amount of casualty loss deduction		$43,300

Claiming a disaster loss on an amended return. If you have already filed your return for the preceding year, you can claim a disaster loss against that year's income by filing an amended return. Individuals file an amended return on Form 1040X.

How to report the loss on Form 1040X. You should adjust your deductions on Form 1040X. The instructions for Form 1040X show how to do this. Explain the reasons for your adjustment and attach Form 4684 to show how you figured your loss. See Figuring a Loss, earlier.

If the damaged or destroyed property was nonbusiness property and you did not itemize your deductions on your original return, you must first determine whether the casualty loss deduction now makes it advantageous for you to itemize. It is advantageous to itemize if the total of the casualty loss deduction and any other itemized deductions is more than your standard deduction. If you itemize, attach Schedule A (Form 1040) and Form 4684 to your amended return. Fill out Form 1040X to refigure your tax on the rest of the form to find your refund.

Records. You should keep the records that support your loss deduction. You do not have to attach them to the amended return.

Grants. You do not have to include grants received under the Disaster Relief and Emergency Assistance Act in your gross income. However, you cannot deduct a casualty loss to the extent you are specifically reimbursed for it by the grant.

Federal loan canceled. If part of your federal disaster loan was canceled under the Disaster Relief and Emergency Assistance Act, it is considered to be reimbursement for the loss. The cancellation reduces your casualty loss deduction.

Special rules for main home in a disaster area. Special rules regarding gains may apply to insurance proceeds you receive because of the damage to or destruction of your main home (whether owned or rented) or its contents. For a discussion of these rules, see Gains Realized on Homes in Disaster Areas in the instructions for Form 4684.

Postponed Tax Deadlines

The IRS may postpone for up to 120 days certain tax deadlines of taxpayers who are affected by a presidentially declared disaster. The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA.

If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB).

Who is eligible. If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement.

• Any individual whose main home is located in a covered disaster area (defined later).
• Any business entity or sole proprietor whose principal place of business is located in a covered disaster area.
• Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area.
• Any individual, business entity, or sole proprietor whose records are needed to meet a postponed deadline, provided those records are maintained in a covered disaster area. The main home or principal place of business does not have to be located in the covered disaster area.
• Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area.
• The spouse on a joint return with a taxpayer who is eligible for postponements.
• Any other person determined by the IRS to be affected by a Presidentially declared disaster.

Covered disaster area. This is an area of a Presidentially declared disaster area in which the IRS has decided to postpone tax deadlines for up to 120 days.

Abatement of interest. In addition to postponing the tax deadlines, the IRS may grant an extension to file income tax returns and pay income tax. In this case, the IRS will abate the interest on underpaid income tax for the length of the extension period and for the length of any postponement.

Contacting the Federal Emergency Management Agency (FEMA)

If you need to contact FEMA for general information, call 202-646-4600 (not a toll-free call) or visit its web site at www.fema.gov.

If you live in an area that was declared a disaster area by the President, you can get information from FEMA by calling the following phone numbers. These numbers are only activated after a Presidentially declared disaster.

• 1-800-462-9029
• 1-800-462-7585 if you are a TTY/TDD user

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