No one wants to find themselves in a presidentially declared disaster area, but millions of people every year end up within an area of that designation. Once the dust settles, the media leave, and the disaster victims try to find their new normal, the financial impact of the disaster becomes more apparent. Fortunately, there are federal tax breaks available to help offset the loss of personal and business property.
The Internal Revenue Service has already issued relief for victims of Hurricane Michael, which hit the Florida Panhandle, as it did earlier this year for those impacted by Hurricane Florence, which brought damage to the Carolinas. “The IRS has moved swiftly to announce this relief for taxpayers affected by Hurricane Michael in advance of the Oct. 15 extension filing deadline,” said IRS Commissioner Chuck Rettig, in a statement. “We recognize the devastation this historic storm caused for many taxpayers, and IRS employees stand ready to support the disaster recovery effort as they have done many times in the past.”
This newly announced relief postpones various tax-filing and payment deadlines starting on Oct. 7, 2018 for affected taxpayers in Florida, Georgia, South Carolina, North Carolina and Virginia. As a result, those taxpayers will have until Feb. 28, 2019 to file certain returns and pay any taxes that were originally due during that period.
This relief applies to individuals who had requested an additional six months to file their personal income tax returns as well as those individual taxpayers making quarterly estimated tax payments, the last of which is due normally due Jan. 15. Businesses and other entities, such as tax-exempt organizations with filing and payment deadlines between Oct. 7 and Feb. 29, are eligible for this relief as well. The IRS will automatically apply this filing and penalty relief based on the taxpayer’s address of record.
Casualty and theft losses have long been available as federal income tax deductions for taxpayers who qualify. They are generally claimed as itemized deductions on Form 1040, Schedule A, using IRS Form 4684 and based on a percentage of the taxpayer’s income. To claim a loss, the taxpayer must have personal or business property that was damaged or destroyed by the natural disaster that was not fully reimbursed by insurance or other assistance. In the rare case when reimbursement exceeds the cost of the property damaged, taxpayers would use Form 4684 to claim a taxable gain on the excess reimbursement.
While the IRS has yet to release the 2018 Form 4684 or its instructions, material changes from the 2017 form are not anticipated. What has changed, however, is that with President Donald Trump’s tax reform, casualty and theft losses incurred in tax years 2018 through 2025 are now deductible only if they occur in a federally declared disaster area. They still must exceed $100 per event and 10 percent of adjusted gross income (income after adjustments). Starting in tax year 2017, taxpayers can elect to take the disaster loss on their current year return or carry it back to the immediately preceding tax year to recognize a greater benefit.
Keep in mind that Congress has the ability to change the rules and may do so when its members get back to work in November, so stay tuned for details. In 2017, for example, there were special rules for personal casualty-related losses resulting from named storms Harvey, Irma and Maria as well as the California wildfires. Similar changes could be in store for 2018.
Finally, remember that while tax relief is available for those in presidentially declared disaster areas, filing these claims is complicated and can involve multiple tax years. With the new Form 1040 and associated schedules, it could be even more complicated in the upcoming filing season than in years past. In cases like this, it is beneficial to use the services of a licensed tax professional like an enrolled agent, certified public accountant or attorney. To find one in your area, use the IRS directory.
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Tax Relief for Victims of Hurricanes and Other Natural Disasters originally appeared on usnews.com