The Saint Louis Metro Area has seen its share of weather-related disasters this year. Whether it be the March 15th or May 16th, 2025, tornadoes, recovery will take time. On the individual level, recent law changes in the One Big Beautiful Bill Act (OBBB) and the New Missouri Homestead Disaster Tax Credit create both challenges and opportunities for significant tax savings in the upcoming tax season for small business owners and individuals.
For business owners, funds spent to replace supplies and inventory, and to cover day-to-day repairs, are generally deductible expenses on the company tax return if they are not covered by insurance when the expense is accrued or paid, and may be subject to capitalization rules if the expense is substantial.
For individuals, out-of-pocket expenses related to the disasters not covered by insurance deserve closer attention for residents of St. Louis City and County, Franklin County, and Jefferson County (along with several other Central and Southern counties) in Missouri.
Help is on the Way from the Missouri Department of Revenue
Starting in 2025, Missouri has a new non-refundable Homestead Disaster Tax Credit, which allows an individual taxpayer in a presidential disaster declaration area to claim a tax credit up to their insurance deductible or $5,000, whichever is less. Since this is non-refundable, if a taxpayer has no tax liability in 2025, the excess credit can be carried forward up to twenty-nine years. As this is a new credit, we expect the Department of Revenue to release more guidance on substantiating this tax credit claim in January 2026.
Federal Tax Savings
Due to a law change in the OBBB, a disaster must be either a presidentially declared disaster or a certain state-declared disaster, but individuals do not have to itemize to claim the loss on their tax return. For this article, this includes both the March and May 2025 storms under FEMA Disaster 4867-DR and 4877-DR, respectively. Generally, a taxpayer can deduct the decrease in the fair market value of their house compared to its condition immediately before the disaster. Facts and circumstances matter here, so keep detailed notes, including the disaster date, the type of damage, the location, and the specific repairs needed to return your property to a condition similar to before the storm. If any insurance or other reimbursement was received, or Missouri tax credits were claimed, this will lower the deduction amount. The amount is reported on IRS Form 4684 – Casualties and Thefts. This total is further reduced by $500 on the IRS form. Still, it can be claimed as a tax deduction on an individual’s tax return on Schedule A if itemizing, or as an addition to your standard deduction if not itemizing.
For substantiation of the deductible expenses, the IRS expects a taxpayer to determine the actual cost of the loss through an appraisal or the actual cost of repairs. If those are not available, a taxpayer has other options which are considered safe-harbors, meaning there is less risk for the IRS to challenge the deduction, such as an estimated cost to repair via two repair estimates if the loss is determined to be less than $20,000, a signed binding contract with a contractor, an appraisal for insurance or disaster loan among others, reduced by any repairs provided by a third party at no cost.
Conclusion
The March 15th and May 16th, 2025, tornadoes were significant disasters that will likely take years for affected individuals and businesses to recover from fully. Understanding and utilizing tax law to your advantage allows taxpayers to plan and reduce their overall tax liability, thereby providing cash to aid long-term recovery. As always, please seek tax advice from a qualified professional before making any big decisions.
Alan Dierker, CPA, is a Tax Manager at Schmersahl Treloar. He can be reached at 314.966.2727. Angela Pinion is an Accounting Services Manager at Schmersahl Treloar. She can be reached at 314.966.2727.