Hurricane Florence and Casualty Losses
Hurricane Florence has finally left the state, leaving behind heartbreaking damage and destruction. The IRS has a couple of things in place that might be of assistance to taxpayers who were in the storm’s path.
First, several counties have been granted extensions for some tax-related matters. As of this writing, eighteen North Carolina counties have been included in the disaster declaration which postpones certain tax deadlines. This means individuals and businesses who had already filed for an extension for their 2017 returns get until January 31, 2019 to file before failure-to-file penalties are assessed. (As was the case with the original extension, this grants more time to file; any taxes owed were due on April 17 and interest continues to accrue.) This new deadline also applies to taxpayers who should have made their third quarter estimated tax payments this week, with no late penalties being assessed for payments made before the end of January. Business owners will get some extra time to handle certain payroll tax issues as well.
To qualify for these extensions, taxpayers must live or own businesses in the counties on the declaration list. The list may be modified to add more counties as the true scope of the disaster becomes known; the updated list can be found here.
Taxpayers who incur unreimbursed expenses as a result of storm damage may be eligible to take a casualty loss deduction on their tax return. This deduction is also limited to those living in the counties listed in the disaster declaration. Losses covered by insurance are not eligible; the IRS states you cannot deduct a loss if there is a “reasonable prospect of recovery,” even if the insured has not received the funds yet. However, with many homeowners having large deductibles, unreimbursed expenses add up quickly, making the casualty loss deduction something that should be considered.
To figure the amount of the deduction, start with the amount of loss. Subtract $100, then subtract 10% of the taxpayer’s Adjusted Gross Income (AGI). The remaining amount gets listed on Schedule A as an itemized deduction. As an example, suppose Ricky and Lucy have an AGI of $60,000 and a casualty loss of $10,000. The $10,00 is first reduced by $100, leaving $9,900. This is further reduced by $6,000 (10% of their AGI), resulting in a deduction of $3,900 for their Schedule A.
And here’s where it gets interesting: the new tax law, with its nearly-doubled standard deduction, means most taxpayers will not itemize in 2018, making this potential casualty deduction useless. However, for taxpayers in the disaster declaration area, the casualty loss can be deducted on the previous year’s return. Doing this may result not only in actually getting a tax benefit but would also help get much-needed funds into the taxpayer’s hands since the IRS will expedite 2017 amendments marked “North Carolina Hurricane Florence.”
The IRS’s Disaster Assistance and Emergency Relief page is a great resource for anyone affected by Hurricane Florence. Check it out to get links to many government resources for hurricane victims. Obviously, taxes aren’t currently on the minds of those who sustained losses in the storm. However, in the coming days this information may be helpful to some of our friends and neighbors as they begin the rebuilding process. Please contact us if we can help with any questions.