Hurricane Michael Relief
I find myself having to write and advise on disaster area casualty losses all too often over the past 12 months. Hurricane Michael has devastated large parts of the Florida panhandle and has caused significant damage inland through Georgia and beyond. The IRS has issued various reliefs to those residing in the effected areas including additional areas of North Carolina, South Carolina and Virginia. Individuals, residents and businesses in the following counties may be eligible for tax relief from the IRS:
Florida counties: Bay, Calhoun, Franklin, Gadsden, Gulf, Hamilton, Holmes, Jackson, Jefferson, Leon, Liberty, Madison, Suwannee, Taylor, Wakulla and Washington
Georgia counties: Baker, Bleckley, Burke, Calhoun, Colquitt, Crisp, Decatur, Dodge, Dooly, Dougherty, Early, Emanuel, Grady, Houston, Jefferson, Jenkins, Johnson, Laurens, Lee, Macon, Miller, Mitchell, Pulaski, Seminole, Sumter, Terrell, Thomas, Treutlen, Turner, Wilcox, and Worth
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 2017 personal returns that were due on October 15th, 2018. The deadline has been extended to February 29th, 2019. However, tax payments due for 2017 do not receive an extension as they should have been paid by April 17, 2018. Various other tax filings and tax payments that were to be made in the period commencing October 7th, 20178 are being granted relief and have also been extended to Feb 29, 2019. 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. There was a lot of discussion about casualty loss claims when the new tax bill went into effect in 2018, however, the change for casualty losses in declared disaster areas went mostly unchanged. 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 2017 returns and have refunds issued against previously paid tax by claiming casualty losses on the amended returns. If you haven’t yet filed your 2017 return, you can claim the loss on that return when it is initially filed. If you are not in a rush, you can also claim casualty losses on your 2018 return when you file it. You don't have to amend 2017 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.
I go into more detail about casualty losses in the below link that was written for Hurricane Harvey victims. There is little 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 “Florida, Hurricane Michael” 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. It is an option that has been provided in disaster situations in the past.
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.
As always, the information contained within is not to be used as advice. Please contact your tax advisor before making any decisions.
Adam Ditsky, CPA
President, Ditsky Strategic