A record-breaking number of federal disasters were declared in 2011, and if you were a victim, a bright spot is that you can claim a casualty loss as an itemized deduction and reap significant tax savings. If you lived in a federally declared disaster area last year, your deduction can be claimed on either an amended 2010 return or a 2011 return.
A decision on which year in which you file for a casualty-loss deduction is pertinent if your income varies from year to year, says Vincenzo Villamena of
onlinetaxman.com, which is an online accountant firm. If you file for a deduction when your annual income already is lower, that might knock you into a lower tax bracket.
Internal Revenue Service says you must reduce the total amount claimed for a casualty loss by 10 percent of your adjusted gross income (AGI) after you reduce each loss by $100. For instance, if your AGI is $60,000 and your loss is $10,000, you subtract $100, then subtract 10 percent of AGI ($6,000). You could deduct $3,900.