• Disaster Recovery Tax Guide:
      What You Need to Know

      You are entitled to a special tax relief and may qualify to receive an extension on your tax deadlines if you were a recent victim of a: Hurricane, Flood, Earthquake, Tornado, Drought, Wildfire.

      Disaster Recovery Tax Guide
  • Casualty and Theft Losses

    A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. It does not include damage from events that are gradual, or damage from routine wear and tear (i.e. termite infestation, mold damage, etc.).

    If the repairs meet certain conditions you may be able to use these costs as a measure of the decrease in fair market value of your property if all of the following are true:

    • repairs are necessary to restore the property to the condition it was in immediately before the casualty
    • amount of money spent for repairs is not excessive
    • repairs only correct the damage caused by the casualty
    • property value after repairs is not, as a result of the repairs, more than the value of the property immediately before the casualty

    You cannot deduct the loss of future profits or income due to the casualty. For example, if the prices of homes in your neighborhood drop after a widespread flooding near your area, the decline in market value of your home is not a casualty loss.

    Theft Loss

    A theft includes, but is not limited to, the taking of money or property by:

    • blackmail
    • burglary
    • embezzlement
    • extortion
    • kidnapping for ransom
    • larceny
    • robbery

    The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Generally, you cannot deduct the loss of property that has been simply lost or mislaid. However, depending on the circumstances, accidental loss or disappearance of property resulting from a casualty could be deductible.

    Ponzi schemes may be deductible as a theft loss in the year the leader of the Ponzi scheme is charged with the crime instead of waiting for the outcome of the trial. If you choose to deduct the loss before the trial is complete, you will be limited to no more than 95% of the loss as a deduction. See www.irs.gov for more information.

    Expenses incurred for preventative measures against casualties and theft is not deductible as losses, such as:

    • boarding up your house before a hurricane
    • building a levee to prevent future flooding
    • installing a security system after a break-in

    Instead, you might be able to capitalize some of these expenses, if they are for permanent improvements, and add them to the basis of your property.

    Incidental expenses you have as a result of a casualty or theft are not deductible and are not included in your total loss. Incidental expenses include the cost of:

    • medical treatments for personal injuries, although you may be able to deduct the expenses as a medical deduction
    • temporary housing or hotel fees
    • renting a car

    The IRS Disaster Resource Guide contains valuable information for those claiming casualty losses on property that was destroyed by a natural disaster, including: tax forms needed to claim a casualty loss, common questions, free tax services and instructions on how to identify which disaster losses to claim.

    Disaster Resource Guide for Individuals and Businesses

    For more information on Casualty, Disaster, and Theft Losses

  • How to Replace Lost Identification and Documents

    Replacing documents and identification lost in a disaster can be a confusing and overwhelming task. It is important to replace any legal documents that have been damaged or lost as soon as possible.

    Documents or records you may need to replace include:

    If you have lost your ATM card, contact your bank and have them cancel the card and reissue a new card. If you have been displaced, remember to change your mailing address for your bank's records at the same time. Your liability on unauthorized use of your debit cards is based on when you report them missing. If you report the ATM or debit cards missing before any unauthorized charges are made, you will not be responsible for any transfers. If you report the cards missing within two business days after you discover the loss, you will be responsible for no more than $50 of unauthorized charges. If you do not report your cards as lost within the 2 business days you can be responsible for up to $500 in unauthorized use. You risk unlimited responsibility if you do not report the cards missing within 60 days after the bank statement showing the unauthorized use.

    Recreate business records by contacting your:

    • bank to receive duplicates of past statements and checks. These records can be used to help create your expenses and income.
    • credit card companies for duplicates of past statements. These can also be used to recreate your expenses.
    • clients who may be able to provide you with copies of receipts and invoices.
    • vendors and suppliers may also be able to provide a history of supplies ordered and payments made.

    Also remember the IRS and the state and local governments will have past records of your paid and filed taxes.

    The maximum liability you must pay for unauthorized uses of your credit cards is $50. If you report the cards as missing before any charges are made, you will not be responsible for any charges. A copy of your credit report will help you locate the companies to contact concerning your credit cards.

    Contact your bank and request copies of your past bank statements and cancelled checks. Contact your financial advisor or broker for copies of your past statements.

    Contact your insurance provider or agent as soon as possible.

    These can be replaced through your lender or financial company. If you are uncertain of your creditors, a credit report is very helpful. Everyone is entitled to one free credit report every twelve months from each of the three national credit reporting companies. You can log on to www.annualcreditreport.com or call, toll-free 1-877-322-8228. If you have already received your free credit reports for the year, you may have to pay a minimal fee.

    These can be recreated through the locality's courthouse. If the courthouse has been damaged or destroyed, your local disaster management team can help you determine where the relocated records are.

    Contact your local Jackson Hewitt office for help retrieving copies of your prior tax returns. IRS offices nationwide can also assist you in getting copies of your tax returns.

    If the document has been registered at the local courthouse, check with them to receive another copy. If not, contact your attorney. If their records have also been destroyed, you may need to have the documentation, such as a will, prepared again.


    Complete a replacement application at your local Social Security office or go to their website at www.ssa.gov

    Each state has their own rules and regulations; generally you must provide the DMV with personal identification and the vehicle identification number. To find out how/where to obtain replacements for your state, go to www.dmv.org.

    You must report your lost passport immediately. To do so, call 202-955-0430. You must also complete the DS-11 form and reapply in person at a local office. For more information go to U.S. State Department.

    You can replace your lost ID card at any DEERS location in the U.S.

    If you are a resident alien in the U.S. and have lost your accepted documentation, contact the U.S. Citizenship and Immigration Services (USCIS). Find an office or call 800-375-5283.

    Learn more about reconstructing tax records, getting federal assistance, and insurance reimbursement.

  • What To Do in A Disaster

    When Disaster Strikes, Jackson Hewitt Is There for You

    When a disaster strikes, the financial and emotional effects can be devastating for several years to come. Let Jackson Hewitt help you. If you suffer a loss, Jackson Hewitt can guide you through the steps you need to take to ensure you obtain the most from the tax benefits available to you.

    Before a Disaster

    Valuable information about preparing for disasters is available on the American Red Cross ( www.redcross.org) and the Federal Emergency Management Agency ( www.fema.gov) Web sites. There are certain steps you can take before a disaster strikes that will assist you when filing your income tax return. These steps are as follows:

    Homeowner's insurance and auto insurance should be reevaluated periodically. Use your home inventory list to verify that your policy's coverage matches the value of your possessions. For particular items of value in your home you may want to obtain a professional appraiser's report. The cost of the appraisal may be deductible as a miscellaneous itemized deduction subject to 2% of the adjusted gross income (AGI) on your return.

    Ultimately, you have the burden of proving to the IRS the amount you claim as a loss on your return. Be prepared to provide the IRS with documentation to support your basis. This will be important in determining how much of your loss you are allowed to deduct on your return. Keep any documents that can help you establish the original purchase price of your property, such as your HUD-1 Settlement Statement or a Bill of Sale. If you make any permanent improvements to your home (for example, installing storm shutters or building a levee to prevent flooding), add the costs to the original cost of your home. Keep your receipts or other documentation whenever practical. The allowable loss on your tax return is limited to your basis in the property, even if the loss and the fair market value (FMV) of the property are greater than your basis.

    Take pictures or videos of your home and of its contents, especially valuable items, for identification purposes. Keep an itemized list of your property whenever administratively reasonable and possible. You can use the checklist found in IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook; one you have created yourself; or the Household Inventory List Jackson Hewitt has created. Keep purchase receipts, cancelled checks, credit card statements, or other proof of the original cost of the property. You must also prove that you own the property or are responsible to the owner for any damage to the property.

    You should make copies of all your legal and financial documents. The originals should be kept in a safe deposit box or other institution that provides safe deposit boxes. If you home is destroyed, any documents kept there will probably also be destroyed. If you are evacuated, take a copy with you in a water-proof bag or container, or you can place a copy in a fire-proof safe. Another copy of the documents and the extra key to your safety deposit box should be provided to an out-of-state relative or friend. Do not forget to make back-up copies of important information you keep on your computer's hard drive. These backups can be copied to a disk, a CD, or a removable drive. You may want to keep certain information handy, such as contact names, accounts, addresses, and phone numbers, on an Internet-based storage system, such as your Internet e-mail account. This way, you can access important information quickly and conveniently from any computer wherever you are located. For detailed information on what you need to do to replace your lost documents, refer to the Jackson Hewitt, How to Replace Lost Identification and Documents Guide.

    After a Disaster

    The following are certain steps you should take after suffering a casualty loss:

    Take photographs or videos of the damage to your property, as well as any repairs to your property. Keep receipts for any repair or clean-up work. Although they are not considered deductible losses, the repair or clean-up expenses may help establish a decline in the FMV of your property, as long as the expenses are incurred to restore your property to its original condition. Your allowable loss on your tax return is limited to the smaller of your basis in your property or the decrease in the fair market value. Obtain quotes from several reputable contractors for the necessary replacements or repairs. These quotes can be used to substantiate the loss in FMV.

    To determine the decline in the FMV, you also have to prove the FMV of your property before the disaster. If obtaining a professional appraisal before the casualty is not feasible or cost-effective, you can use comparable classified ads, thrift store values, or published industry standard market values (such as the "blue book" values for automobiles) to determine the pre-disaster FMV.

    Save any police reports or newspaper articles to document the disaster that affected you if it is not a disaster that is well-known, such as a federal declared disaster. You may be able to use the inventory list the Federal Emergency Management Agency (FEMA) provides you for loss as support when claiming your loss on Form 4684, Casualties and Thefts.

    If your property is covered by insurance, you should file a timely insurance claim for reimbursement of the loss. If you do not file an insurance claim, the IRS 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.

    You have two years to replace any damaged, destroyed, or lost property. If you meet this time requirement, your insurance reimbursement will not be taxable, even if it exceeds your basis in your property. However, if you do not purchase property that is similar or related in service or use to the property you are replacing, part of your reimbursement may be taxable. If the property you are replacing is your home, you may be able to exclude up to $250,000 (or $500,000 if married filing jointly) for your taxable gain. In some situations, the deadline to replace property may be extended by the IRS. Be aware of the guidelines that apply to you situation and plan accordingly.

    You have two years to replace any damaged, destroyed, or lost property. If you meet this time requirement, your insurance reimbursement will not be taxable, even if it exceeds your basis in your property. However, if you do not purchase property that is similar or related in service or use to the property you are replacing, part of your reimbursement may be taxable. If the property you are replacing is your home, you may be able to exclude up to $250,000 (or $500,000 if married filing jointly) for your taxable gain. In some situations, the deadline to replace property may be extended by the IRS. Be aware of the guidelines that apply to you situation and plan accordingly.

    Federally Declared Disaster

    If the president of the United States has determined your area is part of a federally declared disaster, you must choose how you will claim the loss:

    • You may elect to claim the loss as part of your itemized deductions for the year in which it occurred.
    • You may elect to amend your prior-year tax return by filing Form 1040X,Amended US. Individual Income Tax Return, and claim the loss as part of your itemized deductions in the previous tax year. Specify the date or dates of the disaster and the city, town, county, and state where your property was damaged or destroyed on your amended return. The option to claim the loss on the prior year's amended return expires on the due date (without extensions) of the tax return for the year of the disaster.

    There are special rules for disaster losses if you were impacted by Hurricanes Harvey/Irma/Maria. The total loss from these hurricanes are a direct addition to the standard deduction amount with $500 (instead of $100 and 10% of AGI) deduction from the total for the deductible loss. All other casualty losses are to be treated as always.

    By amending your return, you can get your refund for the loss sooner than waiting until the following year. However, you should compare your tax situation and AGI for both years to determine whether it is to your tax advantage to claim the loss in one year rather than another. If you are considering amending a prior-year return and you used the standard deduction in that year, gather your records for prior-year expenses, such as your state tax withholding, real property taxes, personal property, home mortgage interest, and charitable contributions paid during the year. Add these expenses to the amount of your deductible casualty loss to determine whether you have enough expenses to claim itemized deductions instead of the standard deduction for the prior year.

    There are other benefits you are entitled to if the president determines you are located in a disaster area. Instead of the usual two years, the law provides for a four-year replacement period for replacing principal residences damaged due to a federally declared disaster. Also, the IRS may postpone certain tax deadlines of taxpayers who are affected by a federally declared disaster. The tax deadlines the IRS may postpone include those for filing income, estate, gift, generation-skipping transfers, and certain business taxes; paying taxes associated with those returns; and making contributions to a traditional IRA or Roth IRA. If the IRS postpones the due date for filing your return and for paying your tax, they may abate the interest on underpaid tax that would otherwise accrue for the period of postponement.

    Special Considerations for Self-Employed Individuals

    The casualty loss deduction for business or income-producing property is not subject to the $100 rule and the 10% of AGI rule. Special tax rules may apply.

    Contact a Jackson Hewitt tax professional for assistance in these complex tax situations.