Question

In 2012, the U. S. President declared a federal disaster due to the flooding in Tennessee. Carlos lost his home in that area due to the flood. How does Carlos claim the casualty loss?

A. On his 2011 tax return if it has not been filed by the date of the loss.
B. On his 2012 tax return if the loss is greater than his modified adjusted gross income.
C. On his 2013 tax return by filing an election with his 2012 return.
D. On his 2012 or 2011 tax returns.

Answer 1

Carlos can claim the casualty loss on either his B) 2012 or 2011 tax returns if he itemizes his deductions, completes IRS Form 4684, and the loss exceeds specific thresholds. He has the flexibility to choose the year that provides the greatest tax advantage.

Step-by-step explanation:

In 2012, when a U.S. President declares a federal disaster that results in a loss like the Tennessee flood, a taxpayer such as Carlos has specific tax options for claiming a casualty loss. He can choose to deduct the loss on his federal income tax return for the year in which the casualty occurred, which would be his 2012 tax return.

Alternatively, the taxpayer has the option to amend the prior year's tax return, in this case, the 2011 return, if it provides a tax advantage and it has not been filed by the date of the disaster.

To claim the loss, Carlos should itemize his deductions and complete IRS Form 4684, 'Casualties and Thefts.' The loss must exceed $100 and 10% of his adjusted gross income. The correct answer is D: Carlos can claim the casualty loss on either his 2012 or 2011 tax returns, depending on which is most beneficial for him.