Suffered a Disaster-Related Loss in 2018? FEMA Designation Controls

For decades, U.S. taxpayers who have suffered casualty and theft losses after a wildfire, hurricane, earthquake, tornado, or another natural disaster have been able to deduct disaster-related costs from the next year's federal income tax return.

Because natural disasters can slow insurance processing times and overload local building contractors, permitting the itemized deduction of these out-of-pocket expenses often prompted a generous income tax refund for homeowners who might still be waiting for their insurance claim to be finalized. But in 2018, disaster deductibility changed—under the Tax Cuts and Jobs Act (TCJA), only the victims of natural disasters that have been declared federal disasters by the Federal Emergency Management Agency (FEMA) will qualify for this deduction.

With various parts of the U.S. barraged by fires, hurricanes, and floods in 2018, taxpayers in these areas may be concerned about their ability to recover uninsured losses. Furthermore, those whose property was damaged as a result of a natural disaster in a neighboring state but who aren't in the list of directly impacted zip codes may no longer qualify for a deduction.

Some of the most devastating FEMA-designated federal disasters in 2018 include Hurricanes Florence and Michael in Florida, Georgia, and other Gulf states, severe wind storms in Kansas, wildfires in California, Oregon, Utah, and Washington, and tropical storm Olivia in Hawaii. Victims of those disasters can claim itemized deductions for losses to their home, household items, car, jewelry, and other personal-use property, although they're not permitted to "double-dip" by deducting costs that will be reimbursed in full by their insurance company (or by FEMA).

FEMA's website is continually updated with new natural disaster designations and should be the first point of investigation for taxpayers who are wondering whether they can recoup any disaster-related losses.