As Hurricane Sandy continues to move its way up the East
Coast, now is a good time to review the tax laws and provisions the IRS
provides to help taxpayers and businesses recover financially from the impact
of a natural disaster.
If you were impacted by Hurricane Sandy or are a victim
of the recent wildfire in Oklahoma, or a separate disaster this year, you
may be eligible for a special tax treatment that allows you to claim your
disaster on your 2011 tax return. If you
aren’t able to claim your 2012 disaster now, there are a number of things you
can begin doing in order to prepare for next year’s tax deadline, starting with
these five tips:
Know what’s not covered. Several
costs related to a disaster are not considered deductible losses. These include
the cost of repairing damaged property, restoring landscaping to its original
condition and cleaning up after a casualty. However, if these expenses meet
certain conditions such as an expense incurred to restore your property
to its original condition, you may be
able to use these costs as a measure of the decrease in fair market value of
your property. Damage from routine wear and tear, such as termites, is also not
a deductible loss.
Document your loss. Take
photographs or videos of the damage to your property, as well as any
repairs. It’s also important to keep any and all receipts for repairs or
clean-up work. While these are not deductible losses, repairs or clean-up
expenses may help establish a decline in the fair market value of your property
– again, as long as the expenses are incurred to restore the property to its
original condition. If the disaster that affected you is not widely known,
be sure to save any police reports or newspaper articles to document the event.
Know your deadlines. The IRS may postpone certain tax deadlines for
taxpayers who are affected by a federally declared disaster. These extensions
can push standard deadlines as far back as one year and may include filing
income, excise and employment tax returns, paying taxes associated with those
returns, and making contributions to a traditional IRA or Roth IRA. The IRS
typically publishes announcements about postponed tax deadlines online at www.irs.gov.
File a timely insurance claim. If
your property is covered by insurance, you should file a timely insurance claim
for reimbursement of the loss. Not filing an insurance claim may limit
your eligible casualty or theft loss to the amount that is normally not covered
by your insurance, such as your insurance deductible amount.
Be aware of federally declared disasters. Additional tax relief may be available if an
area is declared a federal disaster area. A full list of 2012 federally declared
disasters is available on
the Federal Emergency Management Agency website. If you have been affected by a federally declared disaster, you must
choose how you will claim the loss – either as part of your itemized deductions
for the year in which it occurred or by amending your prior-year tax return and
claiming your deductions in the previous tax year. If you have a loss in a
federally declared disaster area since January 1, 2012, you may claim the loss
on your 2011 tax return or wait until you file your 2012 tax return next
year. If you have already filed your
2011 tax return, you may amend the return to claim the loss now.