Final answer:
The statement is true. Taxpayers who opt to treat a casualty loss due to a federally declared disaster in the current year as having occurred in the prior year are subject to the 10%-of-AGI reduction based on the AGI of the prior year.
Step-by-step explanation:
The question you've asked relates to the treatment of a loss on a taxpayer's home due to a storm and the options available for claiming a casualty loss deduction when the area has been declared a disaster area by the federal government. It is a tax-related issue, specifically about the tax treatment of casualty losses under the U.S. tax code.
If a taxpayer's home is destroyed in a federally declared disaster area, the taxpayer has the option to deduct the casualty loss on their federal income tax return for the year in which the loss occurred. However, in some instances, the taxpayer may elect to deduct the loss on the tax return for the previous year, accelerating the tax benefit. This option can provide the taxpayer with a refund more quickly, which can be particularly helpful in a time of need.
Regarding the 10%-of-AGI (Adjusted Gross Income) limitation, this rule states that personal casualty losses are only deductible to the extent that they exceed 10% of the taxpayer’s AGI. So, if a taxpayer elects to treat the loss as having occurred in the prior year, the 10%-of-AGI threshold would indeed apply, but it would be based on the AGI of the prior year.
Therefore, the statement is true. If a taxpayer elects to claim the casualty loss deduction for the prior year, the loss will be subject to the 10% AGI reduction based on the AGI for that prior year.