If you are a victim of a disaster, the last thing on your mind is taxes. But tax obligations don’t disappear. Fortunately, you may be entitled to tax relief if you suffered property loss or destruction due to Hurricane Irene, the August East Coast earthquake, fires in Texas, and other disasters occurring this year.
You may have more time to file an income tax return or a petition in Tax Court, or do other tax actions if you are a victim of a disaster. The IRS has the authority to extend filing deadlines, as well as to abate penalties for actions they cannot extend.
Check the IRS Disaster Assistance and Emergency Relief for Individuals and Businesses at www.irs.gov/businesses/small/article/0,,id=156138,00.html so find the latest guidance and information about tax relief for victims of various disasters.
If you are a victim of a disaster in an area declared eligible for federal disaster relief, losses that are not covered by insurance or other reimbursements are viewed as a disaster loss. (You can find the list of federal disaster areas from FEMA at www.fema.gov/news/disasters.fema.) This means you can choose to deduct them on the return for the year in which the loss occurred or in the prior year.
Taxpayers who are on a filing extension for their 2010 return and experienced a disaster loss in 2011 should consider whether to claim the loss on their 2010 return. This may result in a tax refund, which can be used to help rebuild following the disaster.
Taxpayers who already filed their 2010 returns can file amended returns to claim the disaster loss. Those who cannot decide have until April 17, 2012, to decide whether to file an amended 2010 return. After this date, the 2011 loss can only be claimed on a 2011 return.
In claiming disaster losses, here are some important points to note:
Any payments received from a government agency or charity to cover personal living expenses resulted from a federal disaster are tax free. Grants made under the Disaster Relief Act to pay for housing, transportation, medical expenses, personal property, and funeral expenses are also tax free. However, if a grant reimburses a casualty loss, no deduction can be taken for the loss to the extent of the reimbursement.
Any cancellation of part of a federal disaster loan under the Robert T. Stafford Disaster Relief and Emergency Assistance Act is also treated as a reimbursement of a casualty loss and no deduction can be taken to the extent of this reimbursement.
Reimbursements from any source to help with repairs and rehabilitation of a personal residence and its contents lost in a federal disaster area are tax free. Again, no disaster loss deduction can be taken to the extent of this reimbursement.
The federal child tax credit of up to $1,000 per child under age 17 can only be claimed by those with income below set limits. States showing the biggest average tax savings for in 2008 because of the child tax credit, were Utah, Idaho, Wyoming, Alaska and Nebraska. States showing the lowest average tax savings from the child tax credit were D.C., Florida, New York, Massachusetts and New Jersey.
Source: Tax FoundationView all factoids