Wisconsin Flooding: Understanding the Tax and Financial Statement Impact

The August 2025 flooding that devastated Wisconsin communities brings significant tax and financial reporting considerations for individuals and businesses. Governor Tony Evers has requested FEMA assistance, and while a federal disaster declaration remains uncertain, taxpayers need to understand their options now.

Individual Tax Implications: The Federal Declaration Makes All the Difference

For Wisconsin residents, the tax treatment of flood losses hinges entirely on whether FEMA declares the event a federal disaster.

If FEMA Declares a Federal Disaster:

  • Casualty losses become fully deductible
  • Deduction equals the lesser of property’s fair market value decrease or adjusted basis
  • Subtract any insurance reimbursements from the loss
  • Apply standard $100 per casualty and 10% of adjusted gross income limitations
  • You can claim the loss on either 2025 or 2024 tax returns (by election)

If No Federal Declaration:

  • Personal casualty losses are generally not deductible for tax years 2018-2025
  • Exception: Losses can offset casualty gains (like excess insurance proceeds)
  • This limitation stems from the Tax Cuts and Jobs Act

Business Tax Treatment: More Favorable Rules Apply

Wisconsin businesses have better options regardless of federal disaster status:

  • Casualty losses are deductible whether or not federally declared
  • No $100 or 10% adjusted gross income limitations apply
  • Calculate loss as the lesser of basis or fair market value decrease
  • Subtract insurance recoveries from the total loss

Financial Statement Reporting: Complex Rules Require Careful Attention

Businesses must navigate specific accounting requirements when reporting flood damage and insurance recoveries.

Recording Losses Properly

  • Record all disaster-related costs in the fiscal year the disaster occurred
  • Include cleanup costs, property damage, and inventory replacement
  • Report losses separately from insurance proceeds
  • Unusual and infrequent events require separate disclosure on financial statements

Asset Impairment Considerations

Flood damage may require revaluing multiple types of assets:

  • Fixed Assets: Buildings, equipment, and vehicles need recoverability testing
  • Receivables: Customers affected by flooding may be unable to pay
  • Intangibles: Goodwill, copyrights, and patents may require complex impairment calculations

Future Liability Recognition

Environmental damage from flooding creates potential future obligations:

  • Record environmental remediation liabilities when litigation commences and responsibility is probable
  • Consider lease liabilities for damaged leased assets under current accounting standards

Insurance Recovery Accounting: Timing Matters

The accounting treatment of insurance proceeds requires careful consideration:

  • Record claims as receivables only when collection is probable
  • Don’t record disputed claims or those under negotiation
  • Recognize recovery of losses separately from potential gains
  • Gains from insurance can only be recognized when contingencies are resolved
  • Properly classify insurance proceeds on cash flow statements based on their nature

Current Status and Planning Considerations

As of August 13, 2025, Wisconsin’s federal disaster declaration remains pending. However, Governor Evers’ emergency declaration and FEMA request suggest the state believes it will meet federal thresholds.

Action Steps for Taxpayers:

  • Document all flood-related losses immediately with photos and receipts
  • Keep detailed records of cleanup and repair costs
  • File insurance claims promptly and maintain correspondence
  • For businesses, begin asset impairment assessments
  • Monitor FEMA declaration status for tax planning purposes

Don’t Navigate This Alone

The intersection of disaster recovery, tax law, and financial reporting creates complex scenarios requiring professional guidance. Whether you’re dealing with personal property losses or business financial statement implications, the rules are intricate and the stakes are high.

If you have questions about how the Wisconsin flooding affects your tax situation or financial reporting requirements, contact us today. Our team can help you understand your options, maximize available deductions, and ensure compliance with all applicable regulations during this challenging time.