A Tax Fact from The Tax Institute at H&R Block

Fires. Floods. Tornadoes. Hurricanes. Mudslides. During a natural disaster, we worry first about our families and their safety, and then we worry about our homes. Once the disaster subsides, the rebuilding of our everyday lives, and the property that has been damaged or destroyed can begin.

But where do you begin? When families are picking up the pieces of their lives, they need to be able to claim their losses, receive funds quickly and get on with rebuilding. But how?

Filing a casualty loss claim
Typically tax filers must claim a casualty loss on their federal return in the year the loss occurs. However, if the President declares the area a federal disaster, impacted taxpayers can file amended returns and claim the losses on their prior years’ tax returns. This enables disaster victims to recoup their losses more quickly.

Calculating a casualty loss on a prior year or this year’s return, however, can be a confusing process and the best advice is to contact your tax professional immediately for assistance.

For example, any personal property losses not covered by insurance or other reimbursements may be deducted, but you must first subtract $100 for each casualty event and then subtract ten percent of your adjusted gross income (AGI) from your total casualty losses for the year. Sometimes, waiting to claim the loss on this year’s return, rather than filing an amended prior year return, could result in a greater tax savings, depending on other income factors. Ask your tax professional for assistance in choosing the best option for you and your situation.

Tax filing relief
Following a Presidentially-declared disaster, the IRS generally grants late filing relief to affected taxpayers. Late filing relief means that the IRS will not assess penalties or interest if tax returns are filed and other obligations are performed within a specified date. You may be an affected taxpayer if you live, work, or have financial records located in a federal disaster area, or if you are a qualified relief worker assisting in the disaster area. For information, go to www.irs.gov and click on “Storms, Floods, Tornadoes, and Other Disasters.”

Be prepared before a disaster strikes
Most of us want to believe a natural disaster or national emergency will never happen to us. But the simple truth is that a disaster can strike at any time, anywhere and at anyone.

The best precaution is to be prepared in advance of a natural disaster or national emergency. How? It’s easy. All you have to do to help minimize the financial impact of a natural disaster is to complete the “Personal Disaster Preparedness Guide (PDPG) and/or the “Emergency Financial First Aid Kit (EFFAK);” two free, simple tools from Operation HOPE, America’s not-for-profit national leader in providing financial literacy and economic empowerment programs.  Complete it now ... protect yourself and your family, before a disaster strikes. The forms are available at www.operationhope.org.

This Tax Fact is brought to you by The Tax Institute at H&R Block.

To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com

As always . . . everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.