Tax Considerations in the Wake of Hurricane Sandy

November 16, 2012Articles The Legal Intelligencer

Hurricane Sandy left a trail of destruction and dislocation after striking the New York and Mid-Atlantic region on October 29 and 30. Although millions of people suffered significant hardships and losses that can never be compensated, the code’s casualty loss and qualified disaster relief provisions should financially assist impacted taxpayers.

While the losses sustained on the sale or enhance of a personal residence or other items or personal property cannot be deducted, the Internal Revenue Code allows taxpayers who suffer casualty losses with respect to such personal use property to deduct the amount of the loss in computing taxable income.

Code Section 165(c)(3) allows a noncorporate taxpayer to claim a casualty loss deduction, subject to applicable limitations, for losses to property arising from incidents such as Hurricane Sandy.

Section 165(h) imposes two thresholds on the deductibility of casualty losses. It disallows the deductibility of the first $100 of each loss, and states that casualty losses in excess of any gain recognized as a result of a casualty can be deducted only to the extent that the aggregate amount of such losses sustained by the taxpayer in the taxable year exceeds 10 percent of the taxpayers’ adjusted gross yearly income.

Additionally, since Hurricane Sandy has been declared a federal disaster, specialty casualty loss rules also apply. Hurricane Sandy is also considered a “qualified disaster” for the purposes of the exclusion from income for qualified disaster relief payments pursuant to Section 139.