LITTLETON, Colo. -- Colorado residents in the declared counties affected by the severe winter storms of Dec. 18-22 and 28-31, 2006 may be eligible for various forms of tax relief that could lessen some losses, according to federal and state recovery officials.
Special rules apply to Presidentially declared disaster or emergency areas and may be available to taxpayers living in one of the declared counties who have sustained losses as a direct result of the December 2006 storms. If you have a loss attributable to the 2006 storms that occurred in an area designated by FEMA for emergency assistance, you may elect to deduct that loss on your tax return for the immediately preceding taxable year, 2005. For purposes of the election, a disaster includes an event declared a major disaster or an emergency. You normally have until April 17, 2007, the due date of your tax return for the tax year of the disaster without extensions, to make this election. If you have already filed your 2005 return, you may claim the loss by filing an amended return, Form 1040X, for 2005.
The following counties are included in the Colorado Snow Emergency Declaration for the Dec. 18-22 severe winter storm: Adams, Arapahoe, Boulder, Broomfield, Custer, Denver, Douglas, Elbert, El Paso, Gilpin, Jefferson, Larimer, Las Animas, Pueblo, Teller and Washington. Included for the Dec. 28-31 storm are: Baca, Bent, Cheyenne, Crowley, Huerfano, Kiowa, Las Animas, Otero, Prowers and Pueblo.
Casualty losses for tax purposes generally are computed by taking the lesser of the decrease in fair market value (FMV) of the property as a result of the disaster or the adjusted basis of the property. From the smaller of these two amounts you subtract any insurance payments or other reimbursements you received or expect to receive. You should keep the records that support your loss deductions. Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Appraisals or estimates of repairs may be useful in figuring the decrease in the FMV. You do not have to attach the proof of loss to the tax return.
Casualty losses can be claimed on IRS Form 4684.
IRS Publication 547, Casualties, Disasters, and Thefts, and Publication 2194, Disaster Losses Kit for Individuals, will help guide you through the process. These publications and the Form 4684 are available for download from the IRS website at www.irs.gov/formspubs/index.html, or by calling toll-free 1-800-829-1040. For casualty losses related to a business, call 1-800-829-4933.