DON’T LET TAXES COMPOUND THE PROBLEM OF A NATURAL DISASTER

DON’T LET TAXES COMPOUND THE PROBLEM OF A NATURAL DISASTER

by Enrolled Agent Steven J. Weil, Ph.D., EA, LCAM, Royale Management Services, Inc.

In the unlikely event that you or someone you know becomes the victim of a natural disaster, and where you or where they live becomes a federally-declared disaster area, you will want to know all the ways to mitigate the results.  Not only can preparation help to protect life and property, it can also guard against staggering financial loss.

The key is to know what to expect.  If you live in a condo or HOA, you will want to know what the association’s master insurance policy covers and what it does not.  Insurance may help defray some of the costs associated with restoring and replacing damaged and destroyed property, but to keep monetary losses as low as possible, it helps to understand the relevant sections of the tax code.  Under the new Tax Cut and Jobs Act, for example, there is tax relief for victims who suffer casualty losses and are living in a federally-declared disaster area.

Claims require documentation.  You will surely want to make an inventory of the valuables in your home to help you document losses for insurance and tax purposes.  Take photos or videotape not only the interior of your home but also the property and structures outside it.  Damage to your vehicles, landscaping and other possessions may also be tax deductible.

If there’s a chance you might have to evacuate your home, take important documents with you or move them to a safer location, like a bank safe deposit box or a waterproof or fireproof container. Consider photographing important documents like birth certificates, car registration, driver’s license, proof of home ownership, insurance policies, important contracts, medical information, passport, tax documents, etc., and upload these electronic records to a secure cloud-based service.

Tax deductions for homes and buildings with structural damage require a qualified appraisal and records of the repairs to restore the building to its previous condition. Homeowners insurance will cover some personal goods in many cases, whether or not the home is covered for the type of disaster that occurred. Keep in mind that all claims for damage must first be submitted to the property owner’s insurance carrier, even if the property is not covered, in order to take a casualty loss deduction. In other words, your disaster loss may be tax deductible but only to the amount over any insurance reimbursement.

Two additional limitations may be waived in certain federally-declared disaster areas:  You must deduct $100 per event and reduce the total of all personal use property losses by 10 percent of your adjusted gross income.

Be aware that the IRS may extend tax filing deadlines, permit easier access to victims’ funds held in workplace retirement plans, and make other provisions designed to provide financial relief to those affected by a natural disaster.  The IRS website can help you learn about any special announcements, bulletins or special relief being offered during ongoing disasters.

Disaster-related losses can be deductible on your tax return, but only if you follow the rules and provide the appropriate documentation.  You also may be permitted to choose either the current year or the previous year to claim your losses, and your refund could be greater in the non-disaster year than in the current disaster year.

Help in determining the best course in your situation is always available from a qualified tax professional to help you make sure you are taking advantage of every relevant tax provision available to you.

 

Tags: Association Members Articles, Condo and HOA, disaster mitigation, Insurance, taxes