Tax Relief for Those Affected by Natural Disasters - Sep 2021
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Contributed by : Mukesh Makker
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Recovery efforts after natural disasters can be costly. With floods, tornadoes, hurricanes, earthquakes, and other natural disasters affecting so many people throughout the U.S. this year, many have been left wondering how they're going to pay for the cleanup or when their businesses will be able to reopen. The good news is that there is relief for taxpayers - but only if you meet certain conditions. Let's take a look:
Tax Relief for Homeowners
Fortunately, personal casualty losses are deductible on your tax return as long as the property is located in a Presidentially-declared disaster area as long as:
1. The loss was caused by a sudden, unexplained, or unusual event.
Natural disasters such as flooding, hurricanes, tornadoes, and wildfires qualify as sudden, unexplained, or unusual events.
2. The damages were not covered by insurance.
You can only claim a deduction for casualty losses not covered or reimbursed by your insurance company. The catch here is that if you submit a claim to your insurance company late in the year, your claim could still be pending come tax time. If that happens, you can file an extension on your taxes. Please call if you need help filing an extension or have any questions about what losses you can deduct.
3. Your losses were sufficient to overcome any reductions required by the IRS.
The IRS requires several "reductions" to claim casualty losses on your tax forms. The first is that you must subtract $100 from the total loss amount for each casualty event. This is referred to as the $100 loss limit.
Second, you must reduce the amount by 10 percent of your adjusted gross income (AGI) or adjusted gross income from the total casualty losses for the year. For example, if your AGI is $25,000 and your insurance company paid for all of the losses you incurred due to flooding except $3,100, you would first subtract $100 and then reduce that amount by $2500. The amount you could deduct as a loss would be $500.
Taxpayers claiming the disaster loss on a prior year's return should put the Disaster Designation in red ink at the top of the form. Doing so ensures the IRS can expedite the refund processing, waive the usual fees, and expedite requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or to file amended returns claiming casualty losses.
Tax Relief for Homeowners and Businesses
The IRS often provides tax relief for those affected by natural disasters, such as the individuals and businesses impacted by Hurricane Ida in Louisiana. Tax relief for victims of Hurricane Ida includes postponing various tax filing and payment deadlines that occurred starting on August 26, 2021. As a result, affected individuals and businesses will have until January 3, 2022, to file returns and pay any taxes that were originally due during this period.
Individuals who had a valid extension to file their 2020 return due to run out on October 15, 2021, will now have until January 3, 2022, to file. However, taxpayers should be aware that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief.
Claiming Disaster-related Casualty Losses
Affected taxpayers in a Presidential Disaster Area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original (2021) or amended return for last year (2020) will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors. If you choose to deduct losses on your 2020 tax return, you have one year from the due date of the tax return to file.
Help is Just a Phone Call Away
If you're confused about whether you qualify for tax relief after a recent natural disaster, please contact the office for assistance in figuring out the best way to handle casualty losses related to hurricanes and other natural disasters.
| About Author |
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Mr. Maker is a certified Public Accountant and serving the South Asian community since 1993.
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Website: https://taxprofessionalsnw.com/newsletter.php#1
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