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!
Claim Disaster Losses
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 losses on your tax return.
Qualify for Earned Income Credit (EITC) and/or Child Tax Credit (CTC)? You are being given special rules related to being eligible for the same tax credits for 2018; if your earned income for calculating the EITC and CTC in 2018 is lower than in 2017, you may substitute the prior year’s amount (pre-disaster) when calculating these credits for filing. Determining the most beneficial year in which to claim the loss requires a careful evaluation by a Tax Pro of your entire tax situation for both years.
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.
Extended Deadline for Hurricane Maria Victims
Last year, the IRS has extended several tax deadlines for victims of Hurricane Florence. 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.