I hope by the time you are reading this that your life has settled down to a more normal routine after our visit from Hurricane Sandy.
While many of us are “only” dealing with a lack of electricity, quite a few have suffered physical property damage and the challenges that come with recovery. Even if disaster spared you this time, there is an excellent chance that sometime in your life it will be your turn. When that happens, there are a few dimensions to consider. Knowing what to do ahead of time can help in the chaos of the moment.
What to do now
Naturally, the first thing to do is be safe. Secure your property from any further damage or from damaging anyone else, but don’t make any repairs at this time. Contact your homeowners’ or renters’ insurance company to report the loss and to find out from the insurer what steps they want you to take next.
Take photos and itemize the loss and damage, including steps you take to secure the property. If you are prepared and have a list of home contents stored away off-site, that will make it easier. Pulling out a video of your contents can help you remember what actually was there; again in the chaos of the moment you may not have the presence of mind to remember all you lost. On the inventory of property lost or damaged, list each item description, the approximate date of purchase, the cost, and approximate replacement value.
With a natural disaster like Sandy, it can be difficult to tell if damage was from the hurricane or from flooding, and the origin will determine your coverage (or lack thereof). Your regular policy may cover hurricane, wind or tree damage, but not flooding from rising water.
So, if a tree falls on your roof and the rain coming in causes flooding, that typically is covered; flooding in your basement from water coming up from the ground is not. Special flood insurance is needed to cover rising water floods in your home.
Interestingly, if your car is flooded though, the comprehensive coverage in your auto policy should take care of it. Damage from trees falling on cars is also covered under comprehensive. Comprehensive insurance is optional coverage; check your policy to see if you carry it.
In an area like ours where we not only are heavily wooded, but also where deer make a habit of running into cars, comprehensive coverage is good to have. Your insurance carrier will send out an adjuster to survey the damage and provide an estimate. You can also get an estimate of your own from a reputable, quality contractor prior to the adjuster’s visit, so you have an idea if the insurance company’s offer is reasonable or if you should negotiate. You can also hire a public adjuster to assist you; an expert who can navigate the insurance process for you for a portion of the settlement. It is important to note that unfortunately widespread disasters like this bring out not only the best in people, but the worst. Be on guard for disreputable contractors looking for a quick buck for shoddy work (no pun intended).
The Federal Emergency Management Agency also plays a role in disaster relief. Once a community is declared a federal disaster area, residents are eligible to apply for disaster assistance for losses not covered by insurance. FEMA relief will not take the place of insurance, but can provide basics like temporary housing and repairs to make your damaged home “safe, sanitary and functional.” There also may be some aid for cleanup expenses and necessities. Local municipalities request that residents who have suffered damages notify them so they have an accurate accounting of damages for FEMA qualification purposes.
What to do at tax time
If you have additional losses not covered by insurance or aid, you may be eligible for some tax relief. Your loss must be relatively substantial to take a deduction however. The IRS is a big fan of taking part in your gains, but not so much in your losses, but the tax code does allow for a deduction for casualty, disaster, or theft losses. For personal use property, the amount of your loss is the lesser of the adjusted basis, which in simplistic terms means how much investment you have in the property and the decrease in fair market value due to the event.
To figure the loss, take that amount, subtract any salvage value or insurance reimbursement, then subtract another $100. If that number exceeds 10 percent of your adjusted gross income, you can take the amount that exceeds 10 percent as an itemized deduction on your Schedule A. In other words, your out of pocket expenses must be rather large, and if you don’t have enough deductions to itemize, it doesn’t help you at all. If you happen to be unlucky enough to suffer more than one event during a calendar year, you can add them together to jump over the 10 percent hurdle to take the deduction.
Any tax savings from the deduction of course will not be realized until you file your taxes in the next year. That doesn’t help a whole lot right now. But for losses incurred in a federal disaster area, special relief is available with timing. Generally any losses are deductible for the tax year in which they happen. However, for federal disaster losses, you may choose to deduct the loss in the tax year, or alternatively you may also choose to deduct it in the tax year immediately preceding. In other words, if you have a qualifying federal disaster loss now, you may amend your 2011 tax return and include the loss to get any refund of taxes sooner.
On a personal note, I would like to thank the Middle Smithfield Township supervisors, especially Annette Atkinson, for a great job in getting information out. We appreciate the generous offers from our neighbor sharing their generator, to friends and family offering showers and meals. It is heartwarming to know we live in such a caring community.