Once you have put a dollar value on your loss not covered by insurance—and reduced it by any amount of casualty gain—you don’t necessarily know the size of your casualty loss deduction.
The general rule demands that you reduce the casualty loss by $100 (like a deductible on an insurance policy) and by 10 percent of your Adjusted Gross Income. This double-whammy can really whack your tax deduction. If your Adjusted Gross Income is $100,000, for example, the first $10,100 of any casualty loss can’t be taken as a tax deduction.
But this is where new rules come in. If your 2008 loss was due to storms, tornadoes or flooding in the Midwest disaster area— basically including Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin— neither the $100 nor the 10 percent of AGI reductions apply. You may deduct your full unreimbursed loss.
If your loss occurred in any other presidentially-declared disaster area, the $100 reduction applies, but the rule about subtracting 10 percent of your AGI does not.