After tornadoes touched down in Illinois in November 2013, it’s clear that no one is immune from disasters. Hurricanes, earthquakes, tornadoes: they can happen in all corners of the United States.
When disaster strikes, the related expenses can swallow a family’s or business’s budget and lead to some massive losses. That’s why disaster preparation is just the first step.
It may not be the first thing on a taxpayer’s mind after going through an earthquake or hurricane, but the tax code does give a little assistance to people after mother nature has struck.
For instance, if the President declares your disaster-stricken area a major disaster area, it slashes the wait time for tax refunds borne from disaster expenses.
Also, those residing in a major disaster area can make a deduction of their losses in the prior or current tax year, whichever is most beneficial. This would qualify the funds to become a tax refund immediately owed to the taxpayer. A taxpayer just has to file an amended return, and those funds can go toward making much-needed repairs or living expenses.
Many homeowners can also write off the property damage resulting from a disaster. They’re called casualty losses, and can include anything from appliances to a home itself. Calculating your loss can be done quickly but stem from a formula.
The first step is to designate a value for the personal property. Then, subtract from that any insurance settlement received, or any other reimbursements. Then, subtract $100. The last step is another subtraction: this time, subtract 10 percent of your adjusted gross income (AGI).
Of course, consult a tax professional to ensure everything is done correctly and to get the most bang for your buck.
One value to be sure if is the property’s starting value. The increase in value won’t be included in the casualty loss calculation. So, if your vintage oil painting increased from $25,000 to $75,000 before it was destroyed by a hurricane, the extra $50,000 in value isn’t a factor.
Tax filing deadlines are also typically extended for residents of disaster-stricken areas. The IRS normally announces extensions after a disaster has struck, and the government has removed factors from the casualty loss calculation formula in the past (such as the 10% of AGI subtraction in response to Hurricane Katrina).
Natural disasters aren’t fun for anybody, but that relief in the tax code can at least help mitigate the subsequent financial impacts. Knowing the rules and making use of them can get the rebuilding process started that much sooner.
Have you been subject to a natural disaster? What options did you take? Comment below or tweet us @StopIRSDebt.
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