From flooding and drought to wildfires and hurricanes, 2017 brought extreme weather and natural disasters across the U.S. With those disasters came massive property losses. 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.
If you were a victim of the recent hurricanes and wildfires the IRS is giving victims tax relief in the form of extended tax deadlines and other additional relief, like eased casualty loss rules and eased access to retirement funds. If you were affected by other disasters this year and live in counties designated as federal disaster areas, you may qualify for additional tax relief.
You can consult the FEMA website to see if your area was declared a Federal Disaster Area, however here is an overview of what you need to know on the tax front.
Who May Be Entitled to Relief
For taxpayers who were affected by a disaster, here’s how to determine if you are eligible for relief:
- 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 may be 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.
*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.
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.
*Victims of Hurricanes Harvey, Irma, and Maria get eased casualty loss rules under the Disaster Tax Relief and Airport and Airway Extension Act of 2017. Typically, taxpayers have to itemize their deductions in order to claim casualty losses, but victims of Hurricane Harvey, Irma, and Maria do not have to itemize in order to claim their disaster loss.
Other Relief Available
The IRS will also waive the usual fees and expedite requests for copies of previously filed tax returns for victims in federally declared disaster areas. Taxpayers should put the federally declared disaster area 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.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your entries.