If you sustain a casualty loss due to a federally declared disaster under Section 165(i), you may elect to deduct a casualty loss in the tax year before the casualty actually occurred. Taxpayers have the option of claiming a deduction for the casualty loss either in the year the loss occurred or the prior year. To claim the deduction in the prior year, an election may be made to accelerate this loss. In 2019, the IRS finalized a proposed regulation it had issued in 2016 that states this election must be made 6 months after the original due date of the current year return. Under the prior rules, the election had to be made by the unextended due date of the current return.
Who Can Benefit?
Any taxpayer that has suffered a disaster-related loss as defined in Sec. 165 (h)(5) can benefit from this election. This is specifically beneficial for taxpayers who have income to take the loss against on prior year returns and are expecting to have a loss in the current year.
Additional Considerations
The election can be revoked for up to 90 days after the due date of the election. This may be a beneficial election particularly during the 2020 tax year where many businesses may be experiencing losses due to the pandemic.
If you have any questions regarding the tax implications of electing to accelerate disaster losses, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.