Question

A taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area. If the taxpayer elects to treat the loss as having occurred in the prior year, it will still be subject to the 10 percent-of-AGI reduction based on the AGI of the prior year.

True
False

Answer 1

The statement is true. It is true that if a taxpayer elects to treat a disaster area loss as having occurred in the prior year, it is subject to a 10 percent-of-AGI reduction based on that prior year's AGI.

Step-by-step explanation:

The statement is true. When a taxpayer's home is destroyed by a disaster and the area is declared a disaster area, the taxpayer has the option to deduct the loss on the tax return for the year in which the loss occurred or amend the prior year's return to include the loss.

If the taxpayer elects to treat the loss as having occurred in the prior year, the deduction is subject to a 10 percent-of-AGI (Adjusted Gross Income) limitation based on the prior year's AGI, not the current year's.