The last thing that crosses your mind when a natural disaster occurs is the possible impact such an event can have on taxes. The IRS offers assistance to individuals and businesses affected by natural disasters. The recent hurricane that affected the Florida panhandle and South Georgia (Hurricane Michael) has resulted in an automatic extension to file for many counties. The extension applies to anyone who lives in or owns a business in one of these counties. View the full list here. The extension pushes deadlines back to February 28, 2019 and applies to multiple things:
- Personal tax returns;
- Quarterly tax payments due on January 15, 2019; and
- Quarterly payroll and excise tax returns due on October 31, 2018, and January 31, 2018
Those individuals and businesses located within the disaster areas automatically receive the extensions. Taxpayers or businesses located outside of the covered area who need the relief should call the IRS disaster hotline to request it: 1-866-562-5227. These individuals may include:
- Persons who’s records necessary to meet a deadline are in a covered disaster area;
- Individuals working with a recognized organization to assist in relief activities in covered areas; and
- Any individual who was visiting the area and was killed or injured as a result of the disaster
In addition to offering an automatic extension on filing, the IRS also allows personal casualty losses, those losses that are beyond the control of an individual, to be claimed as a qualified disaster loss. The loss can be included on the return for the year in which the event occurred (in the case of Hurricane Michael that would be a 2018 return which would be filed next year) or on a previous year return (can be included on your 2017 return if you have not already filed). Note that casualty losses may be applicable for other events such as tornadoes, fires, floods, vandalism, and more.
What losses can you deduct? Individuals may deduct property losses that are not covered by insurance or other reimbursements. The amount of your loss is determined by the use of the property – whether it’s your primary residence or a rental/second home – and the decrease in the fair market value of the home as a result of the event. You’ll have to calculate the adjusted basis on the property and subtract the fair market value. This will give you your loss. The loss will then be offset by any insurance proceeds or other reimbursements received. AGI and other factors are taken into account if the property is a primary residence. Specific forms are also required to utilize the natural disaster tax deduction. Because of the level of complexity that may exist with some individuals and the potential for a sizable deduction, we recommend working with a qualified tax preparer.
If you are taking advantage of the automatic extension, be sure to file your 2017 return before February 28, 2019. If you are claiming a disaster loss, the IRS instructs you to put the Disaster Designation, “Florida, Hurricane Michael” at the top of the form so that the IRS can expedite the processing of the refund.
Do you have questions or need help preparing a return? Levesque & Associates is here to help.