California Wildfire IRS Relief
The wildfires have decimated parts of California. The IRS has issued various reliefs to those residing in the effected areas and to firefighters and relief workers providing emergency services. Individuals, residents and emergency service providers in the following 7 counties may be eligible for tax relief from the IRS: Butte, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba.
As a reminder, the below is just a summary and many situations present unique circumstances. Please read the releases thoroughly or contact a tax professional to help you navigate the best course of action for your situation. Also, as a reminder, all of the below only applies to areas declared by FEMA as eligible disaster zones. If you are not within those zones, other relief may be available.
- Don't stress about the extension filing deadline for 2016 personal returns that were due on October 16th, 2017. The deadline has been extended to January 31st, 2018. However, tax payments due for 2016 do not receive an extension as they should have been paid by April 18, 2017. Various other tax filings and tax payments that were to be made in the period commencing October 8th, 2017 are being granted relief and have also been extended to Jan 31, 2018. A comprehensive list of which filings and payments are and are not extended can be found in the IRS press release link at the end of this article.
- Casualty losses can generate significant, and fairly immediate, tax refunds and/or savings. A casualty loss is a deductible property loss that you can claim on your tax return. Casualty losses occur when property is damaged, destroyed or lost due to a disaster AND you suffer a net financial loss. To potentially generate quick-ish cash flow, you are allowed to amend 2016 returns and have refunds issued against previously paid tax by claiming casualty losses on the amended returns. If you are not in a rush, you can also claim casualty losses on your 2017 return when you file it. You don't have to amend 2016 returns to take advantage of casualty losses. This is a fairly complicated topic so please read the linked piece and then contact a tax professional, the IRS or FEMA if you need guidance. IMPORTANT NOTE: You can claim casualty losses even if you do not live in a declared disaster zone. However, you must live in a declared area to use the provision allowing you to take the loss on your 2016 return. Anyone outside of a declared disaster area who may have had a loss can only claim the loss on 2017 returns or beyond.
I go into more detail about casualty losses in the below link that was written for Hurricane Harvey victims. There is no difference in how casualty losses are treated between the two disasters. This is still a pretty surface level overview but will give you a good idea as to if you qualify, how to proceed and some useful links.
LINK TO POST BREAKING DOWN CASUALTY LOSSES
- The IRS will provide, free of charge and in an expeditious manner, copies of previous years tax returns. Taxpayers should put the assigned Disaster Designation “California, Wildfires” in red ink at the top of Form 4506 (Request for Copy of Tax Return) or Form 4506-T (Request for Transcript of Tax Return), as appropriate, and submit it to the IRS.
- The IRS has not yet issued guidance as to if they will allow usage of your 401(k) and similar employer-sponsored retirement plans, without penalty, for various hardships (rebuilding, food, shelter,etc) if you are in the FEMA-declared zones. I do not know if they will eventually include this as an option, but if they do, I will provide an update.
The IRS may continue to issue additional relief provisions in the coming days and weeks. If they issue any relevant additional guidance, I will provide an update. Remember, FEMA and the IRS will provide free guidance via phone and at certain locations where available. Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-829-3676. The IRS toll-free number for general tax questions is 800-829-1040. Tax professionals should be able to assist with all available tax reliefs as well.
If you have any questions about the IRS relief, require additional guidance or have any comments on the content, please contact me at firstname.lastname@example.org
Adam Ditsky, CPA
President, Ditsky Strategic