The cataclysmic losses Hurricane Katrina inflicted on Gulf Coast property owners shine fresh light on a murky corner of the federal tax code: tax write-offs for storm damages to houses.

It's a subject worth the attention of any homeowner, anywhere in the country, since it applies not just to monster hurricanes, but to floods, tornadoes, fires and earthquakes. The Internal Revenue Code allows owners of houses damaged by natural disasters to seek and obtain tax relief for losses not covered by insurance. That's the good news.

The bad news: the hoops and snares you've got to get past to figure your write-off relief. The rules can be tricky, and you may end up with a far lower write-off than you think you deserve.

Here's a quick overview of the rules, whether you own property damaged by Katrina or you own a house that is potentially in the path of a future storm.

To begin the tax relief process, you need to calculate how much tax-deductible damage you suffered. IRS regulations prescribe a two-step initial test: First, calculate the decrease in the market value of your property after the storm, compared with its value before. Normally an appraiser is hired to render before-and-after valuations.

Next, figure out your "adjusted basis" for tax purposes in the property. In general, that means what you originally paid for the house, plus any capital improvements you've made, minus any earlier casualty loss write-offs or depreciation deductions you've taken. Your accountant or tax adviser can help you arrive at this number.

Now, take the lesser of those two figures as your starting point -- either the amount of the decline in market value or your adjusted basis. If your adjusted basis is $250,000 but the appraiser tells you the house declined by $300,000 in sales value as the result of damage from the storm, the IRS still insists you start with the lower amount, $250,000.

Next, you jump through three more hoops: First, subtract whatever payments you received from your property insurance policy. Say, for example, that you received an insurance check for $175,000 after the storm. Your gross loss for tax deduction purposes is thus $250,000 (adjusted basis) minus $175,000 (insurance) or $75,000.

Now you subtract $100 from that amount. (Don't ask me why -- it's the rule.) Now the loss is down to $74,900 for the purposes of this hypothetical. Finally, the IRS requires you to subtract 10 percent of your adjusted annual gross income for the tax year of the loss -- that's the bottom-line income number on page one of Form 1040 -- from the loss amount.

For example, your adjusted gross income was $150,000. You take 10 percent of that ($15,000) off the $74,900, and now you're down to your tax-deductible loss amount: $59,900. If your damaged property is in a presidentially declared disaster area, as is the case for thousands of victims of Katrina, you can have the deduction applied to last year's federal tax return as an amendment, rather than this year's. That should get you a cash refund much quicker than if you had to wait for 2005's filing, due next April 15.

Julian Block, a Larchmont, N.Y., tax lawyer and author of "The Home Seller's Guide to Tax Savings," calls the federal storm-damage tax-deduction rules "harsh" because people with moderate incomes sometimes end up with little or no relief. He cites the example of a storm victim whose house suffered $7,500 in damage. Because the taxpayer had an adjusted gross income of $70,000, the first $7,000 of her uninsured loss was non-deductible.

Other snares in the rules to be aware of, according to Block:

* When the president declares a disaster area, your property needs to be within one of the jurisdictions covered by the declaration or you lose the right to apply for an immediate refund from last year's taxes.

* Don't expect to get deductions for extraordinary personal expenditures you made after the storm for fuel, temporary lighting, moving and rental of temporary living quarters. Ditto for uninsured medical expenditures associated with your evacuation or hospital stay for injuries sustained during the storm.

* Keep detailed records and photographs documenting your claims for storm-damage deductions. The IRS has been known to audit returns seeking write-offs and is usually not impressed with taxpayers' undocumented estimates of what they owned and lost.

To help you make an inventory of what you have, room by room, the IRS offers a guide, "Publication 584, Casualty, Disaster and Theft Loss Workbook," available online at At the same Web site, you can download the basic rules to storm-damage write-offs, Publication 547.

Kenneth R. Harney's e-mail address is