Tax Benefits Available for Victims of Natural Disaster

The years 2011-2012 brought extreme weather and natural disasters across the US, from flooding to drought, snowstorms to wildfires, not to mention hurricanes, tornadoes and earthquakes, and destructive high wind storms. With those disasters came massive property losses, as many people became victims of natural disasters. If you experienced a loss, my heart goes out to you. As you struggle to rebuild, you may find comfort in knowing that there is some tax relief coming your way.

Natural Disaster

Natural Disaster

If you haven’t already filed your taxes and were a victim of recent severe storms, flooding, or disasters you may have more time to pay taxes and file your tax returns if you were affected and in counties designated as federal disaster areas qualifying for individual assistance.

The extended dates are specified by county and may give you an extension to file your 2011 tax return as late as May 31, 2012 (the postponement applies to the normal April 17 tax deadline for filing 2011 individual income tax returns, making income tax payments, and making 2011 contributions to an IRA if you were an affected taxpayer)

You can consult the FEMA website to see if your area was declared a Federal Disaster Area. That web address is http://www.fema.gov/news/disaster_totals_annual.fema

Who May Be Entitled to Relief

Taxpayers affected by disaster and eligible for relief include:

  • Individuals whose principal residence and any business entity whose place of business is located in counties designated as disaster areas.
  • Any individual who is a relief worker assisting in a covered disaster area, regardless of whether they are affiliated with recognized government or philanthropic organizations.
  • Individuals whose principal residence, and any business entity whose principal place of business is not located in a covered disaster area, but whose records necessary to meet the filing or payment deadline are maintained in a covered disaster area.
  • Estates or trust that have tax records necessary to meet filing or payment deadlines in a covered disaster area.
  • Any spouse of an affected taxpayer with regard to a joint return of the husband and wife.

Claiming Casualty Loss for Disasters

Whether or not your area was declared a federal disaster, you are entitled to claim casualty losses as an itemized deduction on your tax return.  A casualty loss is officially defined as “the damage, destruction or loss of your property from any sudden, unexpected or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.”  The loss can be from a natural or man-made disaster.

You’ll claim your loss on Form 4684, which is  filed with your tax return. The first $100 of loss is not deductible, and the remainder of the loss is deductible to the extent that it exceeds 10% of your adjusted gross income. Of course, any losses reimbursed by insurance or covered by federal disaster funds aren’t deductible.  TurboTax walks you through, step by step, and makes all the computations for you.

Though a casualty loss is usually deductible in the year it happened, you have the option of taking the deduction on your prior year’s return so you can reap the benefit quickly.  The deadline for choosing in which tax year to claim the loss is generally the due date of your current-year return.  If you’ve already filed, use TurboTax to amend your return on Form 1040X, writing in red at the top of the return  “Disaster” and the name of your city, county or state that was declared a disaster area.

Other Relief Available

The IRS will also waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Though a tax deduction doesn’t reimburse your loss dollar for dollar, it does reduce your taxable income, resulting in a lower tax bill or bigger refund.

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