Disaster Tax Relief

We've had quite a few natural disasters over the last several years, so it's appropriate to talk about some of the tax relief that might be available to those that have been affected by storms or other natural disasters. Fortunately, there is special disaster tax-relief provision that helps taxpayers recover from the financial impact of nature's wrath.

Tax Relief and Natural Disasters

Perhaps the most important form of disaster tax relief is the fact that the Internal Revenue Service may grant additional time to file a tax return or pay income taxes to those affected by a disaster. Businesses and individuals can also get a faster tax refund by claiming losses related to a disaster on their tax return for the prior year, usually through the filing of an amended income tax return.

Declaring Disaster Losses

Additional Resources

Disaster tax relief is covered in the IRS Topic 515 - Casualty, Disaster and Theft Losses - which applies to areas declared by the President to be disaster areas. This tax topic applies to losses that are generally defined as those resulting from the destruction of, or damage to, your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or even a volcanic eruption.

If your property was not completely destroyed, then you must first figure the decrease in fair market value of the property. For a home, this is often done through a professional appraisal - comparing the before and after market value of the home. From this calculated loss in value, you must subtract any compensation you have already received or expect to receive from your homeowners insurance policy or other sources of relief.

Personal Property and Homes Damaged

If personal property or your home is damaged or destroyed in an area the President declares disaster area, then you are not required to immediately report any gain for insurance or other relief you get for unscheduled personal property. You should declare a gain only to the extent that the replacement property cost less than the compensation received.

In other words, if for some reason you were paid for lost furniture an amount that was greater than your actual cost to replace the furniture - then you must declare the gain. The IRS provides you with additional tax relief in that you can postpone this gain for four years after the close of the first tax year in which the gain was realized.

IRS Rules for Tax Relief

It is important to understand that there are special IRS rules for those that find themselves in areas the President declares are disaster areas. As mentioned earlier, in these situations you might be able to achieve faster disaster tax relief. For example, casually losses are usually deducted in the year the loss occurred. But in this situation, you can decide to deduct the loss on an amended form for the prior year - one you may have already filed with the IRS.

Being a victim of a disaster can be a life changing event, but the government plays a role in easing the financial pain by providing disaster tax relief. Don't remain a victim when help is available. Talk to a tax professional, contact the IRS, or get in touch with another tax service provider so that you can understand the rules that apply to your individual situation and get the help that you deserve.

Tax Law Provisions for Disaster Situations

There are special tax law provisions can help taxpayers recover from the financial burden of a natural disaster, As mentioned earlier, this can range from the IRS granting additional time to file returns and pay taxes through then faster refunds related to claims of losses. In fact, the IRS has several publications dedicated to the topic of disaster tax relief:

Publication 547, Casualties, Disasters and Thefts - this publication provides details on how to figure and claim a disaster loss including:

Definitions of a casualty, theft, and loss on deposits.
How to calculate the amount of your gain or loss.
How to treat insurance and other reimbursements.
Limits on deductions.
How to report a loss or theft.
Special rules that apply to disaster areas.

Publication 584, Casualty, Disaster, and Theft Loss Workbook - this publication is a workbook that helps you figure out your loss on personal property including schedules to help you calculate losses to your home and vehicles.

Publication 2194, Disaster Losses Kit for Individuals - a 120 page book dedicated to those affected by a major disaster or emergency. The Disaster Losses Kit can help you claim unreimbursed casualty losses on property that was destroyed by a natural disaster.

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