How to Use Form 4684 for Hurricane Ian Damage Claims

Hurricane Ian caused significant damage, leaving many homeowners and businesses with costly repairs. If you suffered losses from the storm, you may be able to claim a tax deduction using IRS Form 4684, which covers casualty and theft losses. This can help reduce your taxable income and offset some of the financial burden.

Understanding how to properly complete this form is essential to ensuring you maximize your eligible deductions while complying with IRS rules.

Qualifying Hurricane Damage

To claim a deduction for losses caused by Hurricane Ian, the damage must meet the IRS definition of a casualty loss—sudden, unexpected, and caused by an identifiable event. Gradual deterioration, such as long-term water damage from poor maintenance, does not qualify. Hurricanes are recognized as qualifying events, but the loss must be directly tied to the storm’s impact, such as wind damage, flooding, or structural collapse.

Only property you own is eligible for a deduction. If you were renting and your landlord’s property was damaged, you cannot claim a loss unless your personal belongings inside were destroyed. The property must have been used for personal or business purposes. Investment properties that were not generating income may not qualify unless intended for rental use.

The IRS requires that the loss be linked to a federally declared disaster. Hurricane Ian was designated as such, meaning affected taxpayers in disaster areas can claim their losses under special tax relief provisions. This includes the option to claim the loss on a prior year’s tax return to receive a quicker refund.

Calculating the Loss Amount

Determining the deductible loss starts with establishing the property’s value before and after the hurricane. The IRS allows two primary methods: obtaining an appraisal reflecting the decline in fair market value or estimating the cost of repairs necessary to restore the property. If using the repair method, expenses must be reasonable, directly related to the damage, and not include improvements that increase the property’s value beyond its original state.

Once the decrease in value is determined, it must be compared to the property’s adjusted basis—typically the original purchase price plus any improvements made before the disaster. The deductible loss is the lower of these two amounts. For example, if a home had an adjusted basis of $250,000 and its value dropped by $100,000 due to storm damage, the potential loss is $100,000. However, if the adjusted basis was only $80,000, the deductible loss would be capped at that amount.

The IRS requires individual taxpayers to reduce the loss by $100 per casualty event before applying the deduction. Additionally, the remaining amount is subject to a 10% adjusted gross income (AGI) threshold, meaning only the portion exceeding 10% of AGI is deductible. For instance, if a taxpayer with an AGI of $75,000 has a qualifying loss of $50,000 after the $100 reduction, only $42,500 ($50,000 – $7,500) can be claimed.

Insurance and Other Reimbursements

Any compensation from insurance, disaster relief programs, or other sources must be accounted for when determining the deductible loss. The IRS requires taxpayers to reduce their claimed loss by any reimbursements they are entitled to, even if they have not yet received the funds. This includes payments from homeowners, renters, or flood insurance policies, as well as financial assistance from FEMA or state-level disaster relief programs. If a claim is still pending, an estimate of the expected payout should be used, with adjustments made later if the final amount differs.

If total reimbursement exceeds the property’s adjusted basis, the excess is considered taxable income. This is particularly relevant when insurance policies provide replacement cost coverage, which may result in a payout greater than the property’s pre-disaster value. In such cases, the excess must be reported as income unless reinvested in similar property under the involuntary conversion rules of IRC Section 1033. Taxpayers have up to four years from the end of the disaster declaration year to reinvest and defer the gain, provided the new property is comparable in use and function.

Loan proceeds, such as those from Small Business Administration (SBA) disaster loans, do not reduce the deductible loss since they must be repaid. However, loan forgiveness related to disaster relief may be treated as a reimbursement. Additionally, grants for specific purposes, such as home elevation projects to mitigate future flooding, are often excluded from taxable income but still affect the casualty loss deduction by offsetting repair costs.

Completing the Form

Form 4684 requires a structured approach to ensure all relevant details are accurately reported. The process begins with identifying the affected property and specifying whether it was a personal-use asset, business property, or an income-producing asset such as a rental. Each category follows different reporting rules, with personal-use property reported in Section A and business or income-producing property detailed in Section B. Proper classification is necessary because tax treatment and deduction calculations vary based on property use.

Once the property type is established, a description of the damaged or destroyed asset must be provided, including its location and the date of the event. The IRS also requires a calculation of the property’s fair market value before and after the disaster, supported by appraisals, repair estimates, or other objective valuation methods. Additionally, the adjusted basis of the property must be recorded to determine the maximum deductible amount. Any salvage value or residual worth of the property must also be factored in.

Reporting on Tax Returns

Once Form 4684 is completed, the casualty loss deduction must be properly reported on the tax return. For individuals, the deductible amount from Form 4684 is transferred to Schedule A of Form 1040 under itemized deductions. This means taxpayers must forgo the standard deduction to claim the loss, which may not always be beneficial if total itemized deductions do not exceed the standard deduction threshold. Those who typically take the standard deduction should compare both options to determine the most favorable tax outcome.

Taxpayers in federally declared disaster areas can claim the loss on either the current year’s tax return or amend the prior year’s return for a quicker refund. This can be advantageous when the prior year’s income was higher, as it may result in a larger tax benefit. However, once a choice is made, it cannot be changed after the filing deadline. If an insurance claim is still pending, the loss can be estimated, but any reimbursement received later must be reported as income if it exceeds the claimed deduction.

Record-Keeping

Maintaining thorough documentation is necessary to substantiate the casualty loss deduction in case of an IRS audit. Records should include photographs or videos of the damage, contractor estimates, receipts for repairs, and any correspondence with insurance companies regarding claims and settlements. These documents help establish the extent of the loss and confirm that the reported amounts are accurate.

For property valuations, appraisals or comparable sales data should be retained to support fair market value calculations. If using the cost-of-repairs method, invoices and payment records must demonstrate that the expenses were directly related to restoring the property. Additionally, copies of prior tax returns can be useful in showing the property’s adjusted basis and any previous improvements that affect the loss calculation. Proper documentation ensures compliance with IRS regulations and helps avoid potential disputes over the deduction.