Regardless of the type of property, if you suffer a loss from the recent floods, then your loss will be equal to the less of either: (1) the adjusted basis of the property (generally, what you paid for it); or (2) the loss of value by reason of the casualty (generally, the value immediately before the flood minus the value immediately after). In addition, your loss may be reduced by any compensation received from insurance or otherwise.
Unfortunately, you bear the burden of proving the facts needed for qualifying for the deduction—including the existence of the casualty as the cause of the loss, the resulting decline in fair market value, the adjusted basis of the asset(s), and that you actually owned the asset(s). Proof of the casualty is easy enough. Keep copies of newspaper or online articles about the recent floods, and also obtain a copy of the Presidentially-Declared Disaster Area notice for your county. In substantiating the loss, you must establish: (1) the adjusted basis of the asset(s) involved; (2) the decline in value of the property as a result of the casualty; and (3) the amount of any reimbursement. In order to justify your loss, you will need proof of what you paid for your property, as well as proof of its value before and after the flood, if you have it. In order to prove the value of real estate and other substantial assets after the flood, an appraisal may be necessary.
If the loss is from property used in a trade or business or income-producing property (such as rental property), then you can deduct the full amount of the loss as determined above. If the loss is from non-business (or personal) property, certain limitations apply restricting the amount you can deduct.
Generally, a loss is deductible in the year it is sustained, 2010 in this case. However, losses sustained because of natural disasters in Presidentially-Declared Disaster Areas may be deducted in the prior year, 2009 in this case. Therefore, you have a choice to wait until early 2011 to claim this deduction and hopefully get a refund, or file an amended return for 2009 and get a refund sooner. The one drawback to claiming the loss sooner is that if you get insurance proceeds after filing the amended return, you may have to file another amended return paying some of your refund money back.
The IRS also has resources available on its website for calculating the amount of your casualty losses (go to www.irs.gov and search for Publication 584).