From floods and droughts to wildfires and hurricanes, extreme weather has caused natural disasters across the United States. These disasters have resulted in massive property losses, my sympathies to all those affected by such loss. As you recover, you can find financial comfort in the knowledge that a tax break awaits you.
If you are a victim of a natural disaster in an area designated as a federal disaster, the IRS usually provides relief in the form of extended tax deadlines and other tax benefits.
You can consult with FEMA website to find out if your area has been 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 eligible for assistance
For taxpayers affected by a federally declared disaster, here’s how to determine if you’re eligible for relief:
- Individuals whose main place of residence and any business entities whose places of business are located in counties declared federal disaster areas.
- Any person providing relief in a disaster area, whether affiliated with a recognized government or charitable organization.
- Persons whose principal place of residence and any business entity whose principal place of business is not located in the affected disaster area, but whose documentation necessary to meet the filing or payment deadline is kept in the affected disaster area.
- Estates or trusts that have tax reporting required to meet filing or payment deadlines in a disaster area.
- Any spouse of an affected taxpayer with respect to a joint return of husband and wife.
What tax benefits are available
One way to get help with your expenses if you’ve been hit by a natural disaster is to take advantage of the Casualty Loss Tax Credit.
If your area has been declared a federal disaster, you may be eligible to claim casualty damages as an itemized deduction on your tax return. Casualty losses are officially defined as “damage, destruction, or loss of your property as a result of any sudden, unexpected, or unusual event, such as a flood, hurricane, tornado, fire, earthquake, or even volcanic eruption.” Losses can be a result of a natural or man-made disaster.
*The first $100 of the loss is tax-free, but the remainder of the loss is tax-free if it exceeds 10% of adjusted gross income. Of course, any losses covered by insurance or covered by federal disaster funds are tax-free.
You can claim your accident loss in the tax year in which it happened or in the previous tax year (allowing you to get the tax benefit earlier). For example, if you suffered from a recent natural disaster, you can claim it on your 2022 taxes or on your 2021 taxes. The deadline for choosing the tax year in which to claim your casualty loss is usually the date you file your return for the current year. If you have already filed your 2021 tax return, you can claim your loss by filing an amended tax return. You can use TurboTax to amend your Form 1040X tax return by writing “Disaster” in red at the top of your tax return and the name of your city, county or state that has been declared a disaster area.
You extension file for tax year 2021? You can claim your loss by the October 17 extended tax deadline so you can claim your casualty loss as soon as possible. In many cases, the IRS also offers relief in the form of an extension of payment or filing. Check it out IRS disaster website for more information. You may also be able to claim a state tax credit from your state’s Department of Revenue.
Other help is available
The IRS may also waive routine fees and expedite requests for copies of previously filed tax returns for victims in federally declared disaster areas. Taxpayers must put a federally declared disaster area in red ink at the top Form 4506Request for a copy of the tax return or Form 4506-ТRequest a transcript of your tax return, if necessary, and submit it to the IRS.
While the tax deduction doesn’t make up for your loss dollar for dollar, it does reduce your taxable income, resulting in a smaller tax bill or a larger tax refund.
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