Tax Relief for Hurricane Dorian Victims
Deductions for lost or damaged property, filing and payment extensions, and fee waivers can help taxpayers impacted by the storm.
While Hurricane Dorian continues to batter the U.S., staying safe and finding food, water, shelter and other necessities will be the top priorities for those directly affected by the storm. Eventually, however, many hurricane victims will also have to worry about insurance claims, lost wages and other financial issues. Fortunately, when it comes to taxes, there's some relief available for those left with property damage and lost records in Dorian's wake.
Deduction for Damaged or Lost Property
An important tax break for hurricane victims is the casualty loss deduction for damage to your home, car or personal belongings. (It can also be taken if property is lost or damaged by a tornado, wildfire, earthquake or other natural disaster.) Generally, the deduction is equal to either the property's adjusted basis or decreased value, whichever amount is smaller, less insurance proceeds. Unfortunately, however, there are some limitations and offsets that hurricane victims need to know about before trying to claim the deduction. But there are also some special rules on when you can claim the deduction that could save you some money.
Limits and Offsets
First, for individuals, a property loss is deductible only to the extent it's attributable to a federally declared disaster. So, if your lost or damaged property isn't in a federally declared disaster area, then you probably can't take the deduction. The Federal Emergency Management Agency (FEMA) has a list of federally declared disasters and disaster areas on its website (areas impacted by Dorian are included).
You must also itemize and file Schedule A with your tax return to write off disaster losses. If you claim the standard deduction instead, you can't deduct your losses unless you can claim them as business losses on Schedule C.
If you receive an insurance or other type of reimbursement (such as government assistance), you have to subtract the reimbursed amount when you calculate your loss. Also subtract any expected reimbursement if you haven't received payment yet. If your property is covered by insurance but you don't file an insurance claim, only the part of the loss that isn't covered under your policy is deductible.
Finally, once the eligible loss is calculated, you have to subtract $100 per disaster and then 10% of your adjusted gross income. For example, if you have $20,000 in unreimbursed losses from Hurricane Dorian and your AGI is $100,000, you would first subtract $100. Then, you would subtract $10,000 (10% of your AGI) from the $19,900 balance. The remaining $9,900 is the amount you can deduct on Schedule A of your tax return. (The $100 and 10% reductions don't apply to deductions for lost or damaged business or income-producing property.)
Use IRS Form 4684 to calculate your deductible disaster losses, and then carry the amount over to Schedule A. Check out IRS Publication 547 for more information on the rules for writing off disaster losses.
When to Claim the Deduction
As you might guess, you can claim the casualty loss deduction for the tax year that the loss occurs. However, if you want, you can claim the deduction for the previous tax year instead. For instance, you can claim losses from Hurricane Dorian on your 2019 or 2018 tax return. Pick whichever year is more favorable to you. Claiming the deduction on the previous year's return could mean you get some money back sooner rather than later in the form of a refund of taxes paid on your prior year return. That could make a big difference when you're trying to get back on your feet after a natural disaster.
If you already filed your return for the previous tax year, you can claim the deduction for that year by filing an amended return on Form 1040X. However, the amended return must be filed no later than six months after the due date for filing your original return (without extensions) for the year in which the loss took place. So, for example, if you're claiming a deduction for property damaged by Hurricane Dorian on an amended 2018 return, you must file the amended return by October 15, 2020.
Extensions for Filing Returns and Paying Taxes
When there's a federally declared disaster, the IRS typically postpones tax filing and payment deadlines for affected taxpayers. The extensions usually apply to a wide variety of tax filings and payments, including estimated income tax payments and original tax returns extended until October 15. Also expect the IRS to waive late filing and late payment penalties if returns are filed or payments are made before the extended due dates.
Extension announcements will be posted on the IRS's website for Dorian victims.
Waiver of Fees for Previous Tax Returns
The IRS usually waives the fees and expedites requests from disaster victims for copies of previously filed tax returns or return summaries known as a "tax transcripts." You can request these by filing either Form 4506 (copy of return) or Form 4506-T (transcript). Write the assigned disaster designation (e.g., "Hurricane Dorian") in red ink at the top of the form. You can also request a transcript online at www.irs.gov/transcripts.
You'll want a copy or transcript of your 2018 return if you're claiming a Dorian-related casualty loss deduction for the 2018 tax year and you no longer have copies of your 2018 original return. You'll also need new copies or transcripts for other tax years for your records if your original copies are lost or destroyed by the hurricane, too.
Information about fee waivers and disaster designations will also be posted on the IRS's website for Dorian victims.
State Tax Relief for Disaster Victims
State tax relief may also be available to people and businesses affected by Hurricane Dorian. It usually comes in the form of filing and payment extensions and/or penalty and interest waivers. State tax relief often extends to residents of other states who have a tax obligation in the state providing the relief (e.g., Georgia could provide relief for Florida residents who pay Georgia taxes). Use the following links to check on tax relief announcements for the states most affected by Hurricane Dorian: