Home owners who've lost property or suffered property damage in the wake of Hurricane Katrina can perhaps find bits of financial solace in special tax and other forms of relief available to those in Presidential Disaster Areas.

Presidential Disaster Areas, include those areas designated as such in the wake of Hurricane Katrina in Alabama, Mississippi, Louisiana, and Florida, but also in areas comprising some 30 such areas so far this year, including those hit by Hurricane Dennis, Tropical Storm Cindy and incidents of flooding in 20 or more states.

Taxpayers who live in a Presidential Disaster Area have the option of taking a casualty loss deduction on an amended 2004 tax return now, or waiting until they file their 2005 tax return.

Without the special disaster declaration, taxpayers don't have the extra filing option, but can nevertheless file for a casualty loss deduction with the tax return of the year in which the loss occurred.

IRS extends a hand

In disaster areas, eligible taxpayers claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors. A tax professional can help you determine your best option.

Also, affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

The IRS waives the usual fees and expedites requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or to file amended returns claiming casualty losses.

Affected taxpayers should put the assigned Disaster Designation (i.e. "Hurricane Katrina") in red ink at the top of Form 4506, "Request for Copy of Tax Return," or Form 4506-T, "Request for Transcript of Tax Return," as appropriate, and submit it to the IRS.

Subsequent forms or returns filed for a loss claim or related issues should have the same red ink Disaster Designation at the top of the form or return.

The casualty loss deduction

The casualty loss deduction is based on the decline in the fair market value of property due to damage or destruction by a sudden, unusual or unexpected event, including natural disasters and acts of terrorism.

If you are eligible for the deduction you are only eligible to the extent that insurance or other forms of compensation don't cover the cost of disaster damage or destruction of your property.

As is the case with deductions for mortgage insurance and property taxes, casualty loss is an itemized deduction included on Schedule A. Schedule A deductions are subtracted from your adjusted gross income.

State tax laws vary on casualty loss deductions and because casualty loss deductions often involve large sums and complex tax calculations, you should seek the help of a knowledgeable tax professional to complete any tax return -- state or federal.

Individuals seeking to deduct personal property losses, can't deduct the full amount of the loss and must follow a detailed calculation involving their adjusted gross income and the major portion of the loss to determine the actual deduction.

More help

• For details on a casualty loss deduction, see IRS Publication 547, "Casualties, Disasters and Thefts".

• IRS Publication 584, "Casualty, Disaster, and Theft Loss Workbook" helps you calculate your loss.

• For business property, including home-based business property, IRS Publication 584B, "Business Casualty, Disaster or Theft Loss Workbook" provides the same insight.

• The IRS also offers a relevant on-line topic talk "Casualty And Theft "Casualty, Disaster, and Theft Losses".

• Additional related forms and information are linked from an IRS webpage.

• Other federal assistance is available from the Federal Emergency Management Agency, including funds to help meet temporary housing needs, grants for medical, funeral and other disaster-related expenses. Low-interest business loans are available from the U.S. Small Business Administration to finance recovery from some residential and business losses.

• For those looking to donate to charitable organizations assisting the relief efforts visit IRS's charity information page.

Published: September 6, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.