Tax Relief Courtesy of Hurricane Harvey

harvey

While Hurricane Harvey continues to devastate the Gulf Coast, Texans can expect to receive a little extra relief this upcoming tax year from Uncle Sam. Taxpayers in the federally declared disaster area have the option of claiming disaster-related casualty losses for either the year that the event occurred or the year prior. This means that those whose homes were affected by wind or flood damage can deduct the damages from either this year or the last year’s tax returns. In many cases, amending last year’s returns results in an immediate tax refund which can be then used to live on or begin repairs. However, the option of amending last year’s return may not be for everyone since the IRS does have two rules that must be followed for casualty claims. The first is that the amount of damage claimed must first be deducted by $100. Then the total casualty losses must be reduced by 10% of your adjusted gross income. If you qualify for writing off a loss the process is fairly simple. First, you will need the proper forms. These are the long Form 1040, Form 4684 to determine and report your casualty loss and Schedule A to  itemize your loss deduction. If you are planning on amending your 2016 return you will need to use Form 1040X instead of the long Form 1040. You will then need to determine how the damages incurred have affected your property’s fair market value. This is done through determining how much your property is worth immediately prior to the disaster and comparing it to what it is worth immediately after the disaster. The latter part of this will need to be through a professional appraiser. The difference between these two amounts is your loss from casualty. You can then utilize Form 4684 to determine the deductible amount of your casualty loss.

If you have insurance on your property you must first file a claim to use the damage as a casualty loss. Any money that you receive from the insurance company must then be deducted from the casualty loss amount. All insurance payments must be used to repair, or replace your property or any excess could be counted as a taxable gain to you.

Throughout all of this remember to keep documentation of everything! While the IRS may give disaster victims some leeway, they do require that casualty losses be substantiated and supported.  This will also be of great value to you if you ever get audited in the future.

Consult with your tax advisor to determine which option would be best for you and your family.

For more on how to claim your casualty losses (click here).

Posted in
Not Your Mother’s Pants!

Not Your Mother’s Pants!

What happens when you mix a charitable auction with a famous pair of pants from an iconic movie worn by a legendary international superstar?  A six-figure donation to cancer research and a lot of very happy people… On November 2, 2019, the Estate of Olivia Newton-John listed several items on Julien’s Auction. The famous actor…

New guidelines for deferring payroll tax obligations during COVID-19 disaster

New Guidelines for Deferring Payroll Tax Obligations During COVID-19 Disaster

New Guidelines for Deferring Payroll Tax Obligations During COVID-19 Disaster New guidelines for deferring payroll tax obligations during COVID-19 disaster.  On August 8, 2020, President Trump issued a Presidential Memorandum (Notice 2020-65) directing the Secretary of the Treasury to use his authority pursuant to section 7508A of the Internal Revenue Code to defer the withholding,…

should I move out of California due to the proposed wealth tax

Should I Move Out of California Due to the Proposed Wealth Tax?

Should I Move Out of California Due to the Proposed Wealth Tax? Why now?  I am currently getting a lot of questions from individuals wanting to change their state tax status to California non-resident due to ab2088. Ab2088 known as the Wealth Tax, is a bill going through the California legislation process. “This bill would…

COVID-19 Stimulus Round 4

COVID-19 Stimulus Round 4, which plan will go into effect?

COVID-19 Stimulus Round 4, which plan will go into effect?  Many people have been looking forward to the government’s next round of COVID-19 stimulus– sadly, the fourth wave of COVID-19 relief and the laws around it have become highly politicized and appear to be caught in gridlock between the House and Senate. While both Republicans…