Since the U.S. Tax Code was first adopted in 1913, more than a century ago, taxpayers who have suffered a sudden casualty loss of their homes and personal property caused by fires or storms have been allowed to take an itemized deduction for that loss for any amounts not covered by insurance.
The idea of the casualty loss deduction was to give taxpayers some relief from a particularly bad and unanticipated hand dealt by Mother Nature. For a married couple struggling to make ends meet on a combined salary of $100,000 and taking the standard deduction, the casualty loss deduction could easily save that couple $11,000 in federal and state income tax payments. The casualty loss deduction provided citizens with the funds necessary to replace the furnaces, water heaters, and furniture lost, as well as to remediate the mold that is sure to follow.
That all changed in 2017, when Donald Trump, in one of his first acts as President, took away the American citizens’ long-held right to the casualty loss deduction. His so-called “Tax Cuts and Jobs Act of 2017” eliminated the casualty loss deduction for nonbusiness taxpayers, with one exception. That exception allows the deduction for ordinary citizens only in cases in which the president of the United States, at the request of the governor of a state, issues a Federal Disaster Declaration. In the absence of a Federal Disaster Declaration, individuals who are suffering the exact same emotional and economic trauma from a natural disaster are completely denied relief under the Trump amendment to the U.S. Tax Code.
On July 2, Chicago, Oak Park, and other communities were devastated by a record-breaking and torrential rainfall of almost 9 inches. The sudden deluge overwhelmed the Deep Tunnel’s 2.3-billion-gallon capacity, prompting officials to open the Chicago River locks and reverse the flow of the river, dumping more than 1.1 billion gallons of bacteria-laden waste into Lake Michigan, our region’s chief source of drinking water. Basements were completely flooded, leaving behind thousands of lives shattered emotionally, physically and financially. Our own home, an 1869 Chicago-Austin Historic Landmark which two weeks earlier had suffered a devastating fire, was further ravaged as water poured in through openings in the roof and drains in the basement.
On July 11, Gov. J.B. Pritzker signed a disaster proclamation, activating the state’s emergency operations plan. Unfortunately, under Trump’s Tax Cuts Act, that action is not enough. Where the impact of a once-in-a-lifetime storm overwhelms state and local resources, the governor may seek necessary Federal assistance, which automatically includes reinstatement of the casualty loss deduction, by requesting a presidential declaration that the storm falls within the definition of a “major disaster.” Under the law, the request for a Federal Disaster Declaration can only be made to President Biden by Governor Pritzker, himself. That request must be made within 30 days of the disaster, by August 1, 2023. The time to act is now.