Natural disasters can occur at any moment. Your geographical location will determine the likelihood of such an event happening, but no one knows for certain whether you and your property will be safe. If you ever fall victim to disaster, know that your outlook for the future is far from bleak. The federal tax code includes provisions to help victims recoup the costs of any property damaged or destroyed in a declared disaster area. Here is some basic information on how these provisions work:
The federal tax code’s provisions for disaster relief apply to presidentially declared disaster areas. A list of official disasters can be found on FEMA’s website. Be aware that each specific disaster comes with its own unique tax provisions, so be sure to read the details carefully and consult a tax preparer. To be eligible, the property that was damaged must be located within the official disaster area.
The Internal Revenue Service will give you a fair amount of leeway when recovering from a natural disaster. The IRS will allow you to file your income tax at a later date, suspend payments on previous debts, and provide copies of tax returns for your records if they were destroyed during the disaster.
Casualty loss is the deductible amount of damage not reimbursed by insurance. To calculate casualty loss, subtract the lesser of the adjusted basis of the property or the decrease in fair market value (whichever is less) from the amount of reimbursement you expect to receive. To determine how much of that is deductible, first subtract $100 from the total loss, and then subtract 10% of your adjusted gross income. You can choose whether to claim the deduction on either the prior or current year’s tax return. Claiming the deduction for the prior year will send a refund to you immediately, though it might not always be the best option.
For more information on disaster relief or tax return services, contact The San Diego Tax Pro at (619) 283-8055. We will help you calculate casualty loss, navigate federal tax provisions, and much more.