Hurricane Victims Can Receive Tax Relief

Overview of IRS disaster tax relief and claiming a casualty loss

IRS disaster tax relief

The IRS will automatically provide administrative disaster tax relief and special tax law provisions that grant additional time for individuals and businesses to file returns, pay taxes, and perform certain other time-sensitive acts to taxpayers affected by a federally declared disaster. Some circumstances may apply. The administrative disaster tax relief includes the postponement of filing and payment deadlines for eligible taxpayers and is based on preliminary damage assessments by FEMA.

Which taxpayers are eligible for tax relief?

Eligible taxpayers are defined as:

• Individuals whose principal residence is located in a covered disaster area and their spouse, if filing jointly.
• Business entities or sole proprietors whose principal place of business is located in a covered disaster area.
• Relief workers affiliated with government or philanthropic organizations assisting in a covered disaster area.
• Taxpayers not located in a disaster area but whose records necessary to meet a deadline to perform certain acts are maintained or located in a covered disaster area.
• Any individual visiting a covered disaster area who was killed or injured as a result of the disaster, or any other person determined by the IRS to be affected by a federally declared disaster.

Locations that qualify for IRS administrative relief after Hurricanes Helene and Milton

The areas that qualify for IRS administrative relief resulting from Hurricanes Helene and Milton include the following areas:

• Florida
• Georgia
• North Carolina
• South Carolina
• Tennessee
• Virginia

Disaster relief tax consideration: Claiming a casualty loss

The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the possibility for claiming a casualty loss deduction for most taxpayers. However, eligible taxpayers noted above that are impacted in federally declared disaster areas are allowed to claim casualty loss deductions. As these disaster relief areas have expanded through the Southeast, many individual and business taxpayers can claim the benefits of casualty loss on their 2023 individual and/or business tax returns.

Once you qualify, the calculation of the amount you can deduct will take into account the following items:

1. Adjusted basis of your property
   The starting point is the adjusted basis of your property that was damaged. This amount includes your original purchase price plus any improvements that have been made to the property.
2. Amount of decrease in the fair market value of the property
   In an event like this, an appraisal of the property and amount may not be ideal, so the IRS has set forth safe harbor methods for calculating the amount. The safe harbor methods are as follows:

• • De Minimis Safe Harbor Method
    A taxpayer may make a good faith estimate of the decrease in fair market value of the property. If this method is used, the taxpayer must maintain records describing the items affected and detailing the methodology used for estimating the loss. This method can only be used for losses of $5,000 or less.
  • Replacement Costs Safe Harbor Method
    To use this method, a taxpayer will need to determine the current costs to replace the damaged items immediately before the disaster and reduce that amount by 10% for each year the taxpayer owned the item. The taxpayer will need to compare that amount to the original costs of the property and use the lessor of the two.

Once the taxpayer has assessed the value of the destroyed property, they will need to add back any insurance proceeds or FEMA relief they received considering the event. Lastly, the taxpayer will need to subtract 10% of their AGI and $100 from the amount. The casualty loss deduction cannot exceed the taxpayer’s cost in the property or asset.

Extended tax deadlines for disaster relief areas

Many of these disaster relief areas have pushed back the deadline to file their 2023 taxes, so taxpayers that live in these areas could stand to benefit from the casualty loss deduction. To see an update on when the extended times to file your federal tax return for the disaster relief areas or a map of disaster relief areas, you can refer to the following resources:

• IRS news from around the nation | IRS.gov
• Disaster Declarations for States and Counties | FEMA.gov

Additional Resources

The IRS provides numerous resources to assist individuals and businesses impacted by federally declared disasters. Visit their website for more information.

Questions on disaster relief tax considerations and provisions specific to you and your business? Contact your Keiter Opportunity Advisor.