Top Ten Tax Tips for Disaster Victims

Special tax law provisions may help taxpayers recover financially from the impact of a disaster, especially when the President declares a location to be a major disaster area. Both individuals and businesses in a federally declared disaster area can get a faster refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended return.

Here are the top 10 tips to help you get the proper benefits after a disaster:

Take photographs to document damage to your property or belongings. This will be helpful in calculating the amount of your loss. It may also prove beneficial to take photos showing the condition of the property after it is restored or replaced.

Keep your receipts. Certain expenses may be deductible or helpful in determining your loss. Receipts for contracting work can establish the extent of your loss and substantiate the use of insurance reimbursements (see item 5 below).

Food, medical supplies and other forms of assistance are not taxable, nor do these items reduce the amount you can claim as a loss unless they replace lost or destroyed items.

File your insurance claim in a timely manner. If your property is covered by insurance, it's important to file the claim as soon as possible because any reimbursement must be subtracted when calculating your loss.

Replace property with similar property to avoid paying taxes on any gain from insurance proceeds. However, replacement property does not have to match item-for-item. Because insurance proceeds for the home and its contents are considered a common pool of funds, you can use more of the money to replace the house than its contents, or vice versa. If you qualify, a gain related to a personal residence can be excluded using the sale-of-home exclusion rules.

Reimbursements for losses aren't taxable, unless you come out ahead by receiving more for the property than its basis (original cost plus the cost of improvements). Even if the reimbursement is more than the basis, you don't have to pay tax currently if you replace lost, damaged or destroyed items within 2 years after the loss occurs.

You may be able to claim a casualty loss on your tax return.

The loss amount is based on the lower of 2 numbers:

Either the price paid for the property plus any improvements (called the basis) prior to the casualty, or the property's decline in market value caused by the disaster, which, in some cases, can be determined by repair costs.

The deductible amount is reduced by insurance and most other nontaxable reimbursements.

If the property is not used for business, the deductible amount is reduced by 10% of the taxpayer's adjusted gross income and then reduced again by $100 ($500 for 2009). The 10% floor does not apply to net disaster losses sustained In 2008 or 2009.

A nonbusiness loss generally is claimed as an itemized deduction on Schedule A. But a net disaster loss sustained in 2008 and 2009 is added to your standard deduction. You don't have to itemize to claim these losses.

The cost of cleaning up or making repairs can't be considered part of your casualty loss. However, you can use the cost for repairs as a basis to determine the decrease in fair market value.

The IRS will waive fees and expedite requests for copies or transcripts of your federal tax return. If you need information from your tax return, use Form 4506-T, Request for Transcript of Tax Form, to request a transcript of your federal tax return. A transcript shows most of the line items from your return. You may also use Form 4506-T to request account information (payment of estimated taxes, etc.) and transcripts of W-2s and 1099s. If you need greater detail on prior returns than is provided by transcripts, you may request a photocopy of a prior return and any attachments by submitting Form 4506, Request for Copy of Tax Form. You may obtain these forms by calling the IRS toll-free disaster hotline at (866) 562-5227 or by going to www.irs.gov.

Special considerations for federally declared disaster areas:

You have up to 4 years after the close of the first year in which any gain was realized to replace your principal residence or pay tax on the gain.

You can choose to deduct a loss on the current-year return or amend the preceding year's return, whichever helps your current financial or tax situation the most.

You may have filing and payment deadlines postponed for a time specified by the IRS. Any interest that normally would apply to late payments is waived in this situation.

Also Read:

Disaster Relief
Amended Return
Address Changes

IKE Victims Qualify for IRS Disaster Relief

Texas taxpayers who were adversely affected by Hurricane Ike qualify for tax relief from the Internal Revenue Service, including the postponement of tax filing and payment deadlines until Jan. 5, 2009.

Following the hurricane’s landfall on Saturday, Sept. 13, the federal government declared the following Texas counties a presidential disaster area qualifying for individual assistance: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington.

"We are giving taxpayers in these hard-hit areas until early next year to file their returns and make payments," IRS Commissioner Doug Shulman said. "All Americans have concerns for those affected by this devastating hurricane, and our hope is that this extra time will allow people to stay focused on the rebuilding and clean-up effort."

Specifically, the relief postpones until Jan. 5, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts due on or after Sept. 7, 2008, and before Jan. 5, 2009 — including individual estimated tax returns and corporate tax returns that were due Sept. 15, and extended individual returns due Oct. 15.

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 7 and before Sept. 22, 2008, as long as the deposits are made on or before Sept. 22.

The relief extends an initial seven-day postponement of tax filing and payment deadlines for Ike victims that was announced Sept. 12.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, from Sept. 7, 2008, to Jan. 5, 2009.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area –– but whose books, records, or tax professionals’ offices are in the covered disaster area –– are also entitled to relief. In addition, all relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in the covered disaster area are eligible.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Jan. 5,2009, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership and S corporation returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns) or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Sept. 7, 2008, and before Jan. 5, 2009.

The IRS also gives affected taxpayers until Jan. 5, 2009, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007) that are due on or after Sept. 7,2008, and before Jan. 5, 2009. This includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the Form W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to file timely information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits, due on or after Sept. 7, 2008, and before Sept. 22, 2008, provided the taxpayer makes these deposits on or before Sept. 22, 2008.

Casualty Losses

Affected taxpayers in a presidentially declared 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 or amended return for last year 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.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements but they must first subtract $100 for each casualty event and then subtract 10 percent of their adjusted gross income from their total casualty losses for the year. For details on figuring a casualty loss deduction, see IRS Publication 547, Casualties, Disasters and Thefts.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Texas/Hurricane Ike” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation 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.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster affects them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from IRS.gov, the official IRS Web site, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses
Recent IRS Disaster Relief Annoucements

Tax Relief in Disaster Situations

The Federal Emergency Management Agency has issued an emergency declaration for the state of Florida because of damage resulting from Tropical Storm Fay. The IRS is monitoring the situation unfolding in Florida and will provide tax-related guidance as it becomes available.

Recent Tax Relief

Relief for Victims of Hurricane Dolly in Texas, see News Release

Special Relief for qualified recovery assistance property placed in the Kansas disaster area, see Notice 2008-67

Special Help for Greensburg, Kan., Tornado Victims, see News Release

Relief for Missouri Storms and Floods, see New Release

Relief for Illinois Storms and Floods, see News Release

Relief for Nebraska Storms, Floods and Tornadoes, see News Release

Relief for West Virginia Storms, Tornados, Flooding, Landslides and Mudslides, see News Release
Relief for Wisconsin Storms, Tornadoes and Flooding see News Release

Relief for Indiana Storms, Flooding and Tornadoes see News Release

Don't See What You're Looking For? Around the Nation contains links to previously issued disaster relief.

Tax Help - Disaster Update

The Federal Emergency Management Agency (FEMA) has announced that the President, on July 15, 2008, determined that certain areas in Vermont are eligible for assistance from the federal government under the Disaster Relief and Emergency Assistance Act (42 USC 5121) as a result of severe storms and flooding beginning on June 14, 2008. Accordingly, taxpayers in the counties of Addison and Franklin who sustained losses attributable to the disaster may deduct the losses on their 2007 federal income tax returns.

FEMA also updated information for previously declared disasters in Iowa, Missouri, and Oklahoma. FEMA posts updated information on disasters on a regular basis on the FEMA website.

Tax Help - Victims of Floods, Storms & Tornadoes

The Internal Revenue Service is postponing until Aug. 29 the time to file certain tax returns, to make certain tax payments and to perform time-sensitive acts for storm, flood, and tornado victims in presidential disaster areas in six states, mostly in the Midwest.
Previously, these deadlines varied by state, and the postponement provides people affected by the disasters with additional time.

"Our hearts go out to to the people hit by these disasters," IRS Commissioner Doug Shulman said. “We realize that as people put their lives back together, they need additional time to work on these tax issues."

This announcement will affect counties in Indiana, Iowa, Illinois, Nebraska, West Virginia and Wisconsin that qualify for individual assistance. Affected counties in Missouri previously have been granted relief until Aug. 29.

Related Items:

Disaster news release for Indiana,
Disaster news release for Iowa,
Disaster news release for Illinois,
Disaster news release for Nebraska,
Disaster news release for West Virginia,
Disaster news release for Wisconsin, and
Disaster news release for Missouri.

Help for Victims of Mother Nature

Every year we see Mother Nature at her best and worst. And each year you will find some area of the country that has been hit with either severe drought, hurricanes, flooding and tornadoes.

With the recent flooding in Iowa and New Orleans (yet again), the following are some extremely valuable links the IRS and other government agencies have put together to help you deal with any type of disaster.

For Individuals
FAQs for Disaster VictimsThis section provides current information on disaster relief and frequently asked questions. The Hurricane Katrina FAQs are now listed separately from the general FAQs, which are applicable to any disaster.
Reconstructing Your RecordsReconstructing records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. Records that you need to prove your loss may have been damaged or destroyed in a casualty. While it may not be easy, reconstructing your records may be essential.
Publication 2194, Disaster Losses Kit for Individuals (PDF)Publication 2194 is a Disaster Losses Kit to help individuals claim casualty losses on property that was destroyed by a natural disaster. The kit contains tax forms needed to claim a casualty loss. It also answers common questions like how to extend the time you need to file, how you can receive free tax services and how to identify which disaster losses to claim.
Help for Hurricane Victims: Information on Tax Relief, Charitable IssuesThe Internal Revenue Service is working to provide appropriate relief and assistance to victims of Hurricanes Katrina, Rita and Wilma.

For Businesses
Publication 2194B, Disaster Losses Kit for Business (PDF)Publication 2194B is a Disaster Losses Kit to help businesses claim casualty losses on property that has been destroyed by a natural disaster. The kit contains tax forms needed to claim a casualty loss.
Crop Insurance and Crop Disaster Payments - Agriculture Tax TipsThis section offers helpful tax tips including whether crop insurance and crop disaster payments are taxable.
For Tax Professionals
Disaster Relief Resource Center for Tax ProfessionalsThrough this resource center we address many of the questions received from tax professionals. We've included information published by the IRS, along with links to IRS partners who may offer additional assistance. Many of our partners have developed Web pages that highlight the efforts they've made to help their fellow practitioners to recover and get re-established.
Disaster Assistance Self-StudyThe Disaster Assistance Self-Study provides the basic information needed to assist taxpayers in a disaster. It provides the volunteer practitioner disaster representative member with information on distributing Disaster Kits, computing gains/losses as the result of a disaster, information about administrative tax relief and information about the psychological effects of a disaster on its victims.

Disaster Tax Relief

The IRS announces special tax relief for victims of recent hurricanes, floods, earthquakes, tornadoes, droughts and wildfires.

If you are in the covered disaster areas of a recent natural disaster, you may qualify to receive an extension on your tax deadlines. Affected taxpayers include those living in the disaster areas, those outside the disaster areas whose tax records are located in the areas, businesses located in the disaster area and relief workers.

As of Jan. 14, 2007, the IRS will automatically grant disaster tax relief to taxpayers in the covered disaster area. In other words, you will no longer need to self-identify by writing on your returns or using the disaster designation within tax software. However, if you live or have a business outside the covered disaster area, you will be required to call the IRS disaster hotline (1-866-562-5227) to receive disaster relief after Jan. 14, 2007. See the tax relief granted for your state below.

Disaster	Relief
Nevada: Severe flooding Jan. 5, 2008Covered disaster area: Clallam, Grays Harbor, King, Kitsap, Lewis, Mason, Pacific, Snohomish, Thurston and Wakhiakum counties	Deadlines to file and pay taxes and perform other time-sensitive acts falling on or after Jan. 5, 2008, and on or before March 5, 2008, are postponed to March 5, 2008.Penalty for failure to deposit employment and excise taxes due on or after Jan. 5, 2008, and on or before Jan. 22, 2008, are waived as long as taxes were deposited by Jan. 22, 2008.
Indiana: Severe winter storms and flooding Jan. 5, 2008Covered disaster area: Carroll, Cass, Elkhart, Fulton, Jasper, Marshall, Pulaski, Tippecanoe and White counties	Deadlines to file and pay taxes and perform other time-sensitive acts falling on or after Jan. 7, 2008, and on or before March 31, 2008, are postponed to March 31, 2008.Penalty for failure to deposit employment and excise taxes due on or after Jan. 7, 2008, and on or before Jan. 22, 2008, are waived as long as taxes were deposited by Jan. 22, 2008.

Other Relief Information:

• Casualty loss reminder — Affected taxpayers may claim a disaster-related casualty loss on their current-year returns or on amended returns for the prior year. Property losses not covered by insurance can be deducted, minus a $100 deductible and 10% of your adjusted gross income. As a reminder, returns including such deductions should have the appropriate disaster noted in red ink at the top. See IRS Publication 547 for details.
• The IRS will waive fees and expedite requests for copies of previously-filed tax returns (Form 4506).