Published on: April 20, 2018
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Recovering from Mother Nature’s catastrophes is never easy. With a number of federal declared disasters from hurricanes and tornadoes, to severe storms and flooding, and wildfires, loss victims could use their tax returns to obtain much-needed cash. Millions of Americans who have been affected by natural disasters should be sure they are getting the most from their tax return.
To help taxpayers and businesses recover financially from the impact of a natural disaster, the government recognizes that victims of natural disasters will have property losses to claim and may need access to fast cash and other financial relief. For those filing taxes, there are resources available to lower tax bills, opportunities to recoup some losses, and provisions that can even help put money in your pocket!
The ability to claim personal losses and theft losses has been suspended through 2025. Generally, you can't claim personal casualty losses when doing your taxes, unless you meet certain qualifications, itemize your deduction, and your loss exceeded 10% of your adjusted gross income. You can claim damage on your standard return without itemizing if your uninsured, unreimbursed loss exceeds $500. However, you must be in a federally declared disaster area to claim these losses on your tax return.
There are no special rules concerning the tax credit for taxpayers in any of the major disaster areas in 2022.
Filers from eligible disaster zones can take distributions of up to $100,000 from a qualified IRA or 401(k). The 10% penalty (for withdrawal if younger than 59 1/2 years old) will be waived. Keep in mind that you must access these funds within a reasonable period after the disaster, and repay the funds within three years to avoid paying income taxes on the borrowed amount. This option is currently in the last year for COVID disasters and not yet available for 2022 major disaster losses.
The IRS automatically provides this relief to any taxpayer located in a federally declared disaster area; taxpayers need not contact the IRS to get this relief.
Getting through the tough times that follow natural disasters can be frustrating and complicated. Using a Tax Pro to understand options and resources can help ease stress. If you have suffered a loss, your neighborhood Tax Pro can guide you through the steps to ensure you obtain the most from the tax relief benefits available to get the money you need now.