Tax Relief in Disaster Situations

1. Tax Relief in Disaster Situations Presenter name Presenter title

2. Tax Relief in Disaster Situations Special tax law provisions may: • Grant “postponement periods” for return filings, making tax payments, and other time sensitive acts. • Abate interest and late filing or late payment penalties • Abate penalties for employment and excise taxes

3. Potential Financial Relief Obtain faster refunds for individuals and businesses : • Claim losses related to the disaster on the previous year tax return, usually by filing an amended return, or • Electronically file original tax return for the year the loss occurred

4. Disaster Area • Is determined by the President • Warrants Federal disaster assistance • Known as “Federally Declared Disaster Areas”

5. Casualty Defined Damage, destruction, or loss of property from an identifiable event that is: • Sudden • Unexpected • Unusual

6. Proof of Casualty Loss • Type of casualty and when it occurred • Loss was direct result of the casualty • You were owner of property • Insurance or other reimbursements • Documented evidence to support loss

7. Prior Year Tax Returns • File Form 4506 or 4506-T to secure copies of previous four years of income tax returns. • Fee waived in Federally Declared Disaster Area. • Write in applicable disaster title information in red at top of Form 4506.

8. Establishing the Loss • Real Estate • Personal Property • Vehicles • Business Records

9. Calculating Losses • Determine: • adjusted basis before disaster • decrease in fair market value (FMV) as a result of disaster • Subtract: • insurance or other reimbursement received from the smaller of (a) or (b) above

10. Casualty Loss Limitations Losses of personal-use and employee property are limited (2009): • $500 “deductible” per event • 10% AGI limit per year • 2% AGI limit if used for business by employee

11. Casualty Loss Limitations Personal-use and employee rules in Federally Declared Disaster Areas (2009): • $500 “deductible” per event • No AGI limit for personal property • 2% AGI limit if used for business by employee

12. Taxability of Insurance Proceeds in Disaster Areas • No gain recognized on proceeds for “unscheduled” personal property • Proceeds for home and scheduled property are treated as received for a single item • Proceeds used to replace property similar or related in service or use to home or contents is not recognized gain

13. Casualty Loss Adjustments to Basis • Decrease property basis by: • Insurance or other reimbursement, and • Deductible loss • Increase property basis by: • Amount spent on certain repairs

14. Casualty Loss Income in Disaster Area • FEMA Mitigation Payments • Not Taxable • Insurance payments for living expenses • Not taxable • Unemployment Assistance Payments • Taxable

15. Gains on Casualty • Insurance payment or other reimbursement in excess of property basis • Main home destroyed: • When to postpone “recognized” gain • When to report “recognized” gain • Business property destroyed: • No postponement of gain if you purchase replacement property from a related party

16. Replacement Property • To defer gain: • Buy property specifically for replacement • Adjusted Basis of replacementproperty • Cost minus postponed gain

17. Reporting Gains or Losses • Personal-use Property • Business and income-producing property • Rental Property

18. Insurance and Other Reimbursements After deducting the casualty loss: • If less than expected • If more than expected • If same as expected

19. Net Operating Loss (NOL) • Generated by Individual or Business casualty losses • Reduces tax for prior or future years

20. Resources • www.IRS.gov • IRS Publication 547, Casualties, Disasters, and Thefts • Publication 2194, Disaster Losses Kit for Individuals • Publication 2194-B, Disaster Losses Kit for Businesses • Form 4684, Casualties and Thefts • Local IRS Taxpayer Assistance Center

25. Questions?