Tax Benefits Available for Victims of Natural Disaster

From flooding and drought to wildfires and hurricanes, extreme weather has caused natural disasters across the U.S. With these disasters came massive property losses, my heart goes out to all who experienced such a loss. As you rebuild, you may find financial comfort in knowing that there is some tax relief coming your way.

If you were a victim of a natural disaster in an area designated as a federal disaster, the IRS generally gives relief in the form of extended tax deadlines and other tax relief.

You can consult the FEMA website to see if your area was declared a Federal Disaster Area, and you can find an overview of what you need to know on the tax front below:

Who May Be Entitled to Relief

For taxpayers who were affected by a federally declared 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 federally declared disaster areas.
• Any individual who is a relief worker assisting in a covered disaster area, regardless of whether they are affiliated with a 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 trusts 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.

What Tax Relief is Available

One way to get help with your expenses if you were impacted by a natural disaster is to take the tax break for your casualty loss.

If 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 tax-deductible, but the remainder of the loss is tax-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 tax-deductible.

You can claim casualty loss in the tax year it occurs or the previous tax year (which allows you to reap the tax benefit sooner). For example, if you suffered a casualty from a  recent natural disaster, you can claim it on your 2022 taxes or on your tax year 2021  taxes. The deadline for choosing which tax year to claim your casualty loss is generally the due date of your current-year return. If you’ve already filed your 2021  taxes, you can claim your loss by filing an amended tax return. You can use TurboTax to amend your tax return on Form 1040X, writing “Disaster” in red at the top of the tax return and the name of your city, county or state that was declared a disaster area.

Did you file an extension for tax year 2021? You can claim your loss by the October 17 extended tax deadline so that you can deduct your casualty loss as soon as possible. In many cases, the IRS also offers relief in the form of extensions to pay or file. Check the IRS Disaster Website for more information. You may also find state tax relief with your individual state department of revenue.

Other Relief Available

The IRS may 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 tax refund.

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