Hurricane Katrina's broad path of destruction raises a question that is relevant to homeowners across the country: Do you know how to obtain federal tax write-offs for natural disaster damages to your real estate? We're not just talking hurricanes here, but tornadoes, floods, earthquakes and fires.

The steps involved are lot more complicated than you may think. For starters, you can't simply write off all your uninsured damage losses to your house, though many owners may assume they can.

Quite to the contrary. You're likely to end up deducting a much smaller fraction of your actual losses than you believe you deserve. Here is a step-by-step quick guide to the federal tax deduction rules when a natural disaster tears up your house.

To start the process, you need to get a professional estimate of the market value decrease your property suffered as a direct result of the storm, flood or fire. A licensed real estate appraiser familiar with the local area is likely to be your best resource for this before-and-after valuation.

Next, IRS rules require you to figure out your "adjusted basis" in the house for tax purposes. In general, your adjusted basis is your original cost to acquire the property, plus any capital improvements and landscaping you've paid for during your years of ownership, minus any depreciation deductions you've taken and any prior casualty write-offs you've received.

Whichever of these two numbers -- your appraised value decrease or your adjusted basis -- is the lower, that is your starting point for computing your deductible loss.

Next you subtract whatever your insurance company paid you for your storm or fire coverage. Then you subtract another $100 -- that's right, $100 -- for reasons the IRS rules never really explain. Finally you subtract 10 percent of your adjusted gross income (AGI) for the year of the loss, and voila! You've got your final tax deduction.

To illustrate how this all works, here is the IRS's own example. Say you bought your home a few years back. You paid $150,000 for it and spent another $2,000 on landscaping improvements. Your adjusted basis in the house is $152,000.

This year a fire destroys the house entirely, and damages the shrubbery and trees in your yard. An appraiser you hire estimates the fair market value of the property before the fire at $175,000, but just $50,000 afterwards. Since the $125,000 ($175,000-$50,000) value decrease is less than your adjusted basis ($152,000), IRS regulations require you to start with that number.

From your $125,000 gross loss, now you subtract the $95,000 insurance coverage payout your received, leaving $30,000 as your uninsured balance. From that number you subtract the mandatory $100, bringing your loss down to $29,900. Now you subtract 10 percent of your adjusted gross income (AGI) for the tax year in which the fire occurred. If your adjusted gross income that year was $70,000, for example, you subtract 10 percent -- $7,000 -- from the $29,900. That gives you your final casualty loss deduction total of $22,900.

How's that for a torturous tax relief computation at the very moment you are reeling from your uninsured losses? Simple it is not!

To learn more about the IRS's arcane rules on disaster losses, download Publication 547 from the agency's website, irs.gov. Note that if your property is located within a Presidentially-announced disaster area, you are eligible to apply for your deduction as an amendment to the prior year's federal tax return, rather than waiting for next April's filing deadline for the current tax year.

That should at least get you some cash relief quickly for the repairs and other expenditures you need to make in the immediate wake of the storm, fire, flood or earthquake.

Published: September 12, 2005

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.