Tax Relief in Disaster Situations

Transcription

1 Tax Relief in Disaster Situations Danny Smith - IRS Disaster Assistance/Emergency Relief Program December 5, 2013

2 Special Relief Provisions This presentation provides information on tax relief that is generally available for casualty losses. It also addresses special rules that apply when losses occur in federally declared disaster areas. However, when a major disaster occurs, Congress may pass legislation specific only to that particular event. Supplemental presentations address those types of situations.

3 Possible Tax Relief for Federally Declared Disasters Special tax law provisions may help taxpayers recover financially from the impact of a disaster. When warranted the IRS may: Grant additional time to file, pay, and perform certain other time sensitive acts during the postponement period Waive or abate interest and late filing or late payment penalties Establish waiver period for employment and excise tax

4 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 Claim losses on the original tax return for the year the loss occurred

5 Disaster Area Is determined by the president Warrants Federal disaster assistance Known as Federally Declared Disaster Areas

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

8 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

9 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

10 Establishing the Loss Real estate Personal property Vehicles Business records

11 Calculating Losses Determine: a. Adjusted basis before disaster b. Decrease in fair market value as a result of disaster Subtract: Insurance or other reimbursement received from the smaller of (a) or (b) above

12 Casualty Loss Limitations Losses of personal-use property are calculated on Section A of Form 4684: $100 per-loss limit Subject to the 10 percent-of-agi limit Deductible only if you itemize deductions

13 Casualty Loss Limitations Losses of business property are calculated on Section B of Form 4684: No loss limit for business owned property Two percent Schedule A adjusted gross income limitation on business use property owned by an employee

14 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

15 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

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

17 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

18 Replacement Property To defer gain: Buy property specifically for replacement Adjusted basis of replacement property Cost minus postponed gain

19 Reporting Gains or Losses Personal-use property Business and income-producing property Rental property

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

21 Net Operating Loss Generated by individual or business casualty losses Reduces tax for prior or future years The portion of an NOL generated by a casualty loss can be carried back three years

22 Resources IRS Publication 547, Casualties, Disasters, and Thefts Publication 2194, Disaster Resource Guide Form 4684, Casualties and Thefts Local IRS Taxpayer Assistance Center

23 Questions?