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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.

Large assets that are lost due to a storm may generate unreimbursed losses that exceed income in the year that the loss is being claimed.
Regardless of whether the casualty loss relates to business, income-producing activity or personal-use assets, the loss can generate a Net Operating Loss (NOL), which can be carried to other tax years either backwards or forwards.
The tax code provides that losses that meet the casualty requirements are not considered passive activity losses and are fully allowable.

The Taxpayer Advocate Service "TAS" can help if you can’t resolve your problem with the IRS. If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on the IRS website at www.irs.gov/advocate. You can also call the toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
TAS is your voice at the IRS. The TAS job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. They offer free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own.
If you qualify for our help, They will do everything they can to get your problem resolved. You will be assigned to one advocate who will be with you at every turn. They have offices in every state, the District of Columbia, and Puerto Rico. Although TAS is independent within the IRS, the advocates know how to work with the IRS to get your problems resolved. And the services are always FREE.
As a taxpayer, you have rights that the IRS must abide by in its dealings with you. The tax toolkit at www.TaxpayerAdvocate.irs.gov can help you understand these rights.

A deductible loss can result from a number of events. Here are some examples:
•Storm (including hurricanes and tornadoes). •Flood and wind, •Fire, •Earthquake,
•Other “sudden and unexpected events,” such as an automobile accident, also qualify as a casualty for tax purposes.

The taxpayer Has the Burden of Proof. To deduct a casualty loss, the taxpayer must meet all of the following tests and requirements to take a casualty loss:
•Be able to show that there actually was a casualty loss including showing all of the following:
The type of casualty, Its date of occurrence, That the loss was a direct result of the casualty , That the taxpayer owned the property or was liable for the damage to the owner of the property, and whether there is a claim for insurance reimbursement with a reasonable expectation of recovery. and Justify the amount taken as a deduction.

The allowable deduction for business property destroyed in a casualty is usually different from the loss of personal property.
If the property is used in a trade or business or other activity conducted for profit, the allowable deduction is the lesser of the property’s adjusted basis (before the casualty) or its decline in value because of the casualty.
If business property is completely destroyed, the deduction is the full amount of the property’s adjusted basis, reduced by any insurance recovery, even if the basis exceeded the property’s value before the casualty.
If you have disaster-related losses to business assets, you don’t have to worry about the $100 subtraction rule or the 10% of AGI subtraction rule. Instead, you can deduct the full amount of your uninsured loss as a business expense

FMV is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts. When filling out detailed schedules , you need to know the FMV of the property immediately before and immediately after the disaster, casualty, or theft.
Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Then combine the losses to determine the total loss from that casualty or theft.

Many disaster victims won’t qualify for any personal casualty loss write offs because of the following two rules.
1, you must reduce your loss by $100. Obviously, that’s no big deal. THEN you must further reduce the loss by an amount equal to 10% of your adjusted gross income (AGI) for the year. That is a big deal.
For example, If you incur a $20,000 personal casualty loss this year and have AGI of $100,000. Your write off is $9,900 ($20,000 - $100 - $10,000). You get absolutely no tax break if your loss before the 2 required subtractions is $10,100 or less.Also you have to Itemize your deductions to use the casualty loss deduction.

You figure the amount of your loss using the following steps.
1.Determine your cost or other basis in the property before the casualty or theft.
2.Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. (The decrease in FMV is the difference between the property's value immediately before and immediately after the casualty or theft.)
3.From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive

After you have figured the amount of your loss, as discussed earlier, you must figure how much of the loss you can deduct. You do this on Form 4684, section A. If the loss was to property for your personal use or your family's, there are two limits on the amount you can deduct for your casualty or theft loss.
1.You must reduce each casualty or theft loss by $100 ($100 rule).
2.You must further reduce the total of all your losses by 10% of your adjusted gross income (10% rule).