Hurricane Harvey

My heart goes out to all the victims and their families of Hurricane Harvey and I wish well to all those affected! If you did suffer a loss as a result of this disaster, you may be able to claim a casualty loss tax deduction.

You can elect to claim the loss in either of two years: the tax year in which the loss occurred (2017) or the immediately preceding year (2016). In order to determine the most beneficial year in which to claim the loss, you need to evaluate your tax situation for both years. The higher your marginal tax rate, the more valuable the casualty deduction is for you. One other consideration is how  fast you want the refund. If you need help for paying for some of the restoration costs, you might consider claiming  the deduction in 2016 . This allows you to get the refund from IRS before you even file your 2017 tax return.

What’s a casualty?

A “casualty” is the destruction of property from some sudden, unexpected, or unusual event. If you have progressive deterioration, for example, from pest infestation or a water leak, that does not qualify.

For more information about “casualty losses” see IRS Publication 547.

Casualty loss tax deduction for personal property

If  you held the destroyed property for personal (nonbusiness) use, your casualty loss tax deduction is the lesser of (1) the decline in the property’s value or (2) your basis in the property (usually, its cost). You must further reduce this calculated loss by any salvage value or insurance proceeds you might have received.

Two additional tax rules apply before you can take the deduction. First, you must reduce the loss by a $100 “floor”. Second, you can claim the deduction only to the extent it (combined with any other casualty losses) exceeds 10% of your adjusted gross income (AGI).

To take a casualty loss tax deduction for personal property, you must itemize your deductions on Schedule A and complete Form 4684, Casualties and Thefts.

Casualty loss tax deduction for business property

If the disaster totally damaged your trade or business property, you can claim a loss equal to the property’s adjusted basis. This rule prevents your business from taking a casualty loss tax deduction for more than the depreciated value of the property.

If you held the property partly for personal use and partly for business use, you must treat it as two separate properties. You will have to allocate the loss appropriately.

How to deduct the personal property loss in 2016

If you have already filed your 2016 return, you may claim the casualty loss tax deduction by filing an amended return. You have until October 15, 2018, if you are a calendar year taxpayer, to amend your 2016 tax return to claim the casualty loss that occurred during 2017. If you filed an extension for 2016, you have until January 31, 2018  to file your 2016 tax return.

In both cases you must include a statement saying that you are making the election to deduct the loss in the preceding year. You can either make the statement on the return or you can file it with the return. You must include the name or a description of the disaster that gave rise to the loss, the date or dates of the disaster, and the city, town, county or parish, state, and ZIP code where the damaged or destroyed property was located at the time of the disaster.

To learn more about tax rules and regulations, request a free consultation or call us at 832-919-8448.

 

IRS announced yesterday that it gives tax relief to Hurricane Harvey victims. Affected taxpayers have until January 31, 2018 to file certain individual and business tax returns and make certain tax payments.

Eligible Counties for the Hurricane Harvey Tax Relief

As of now, in Texas, the following counties qualify for the tax relief: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton. Montgomery County and other affected areas are not on this list yet, but more counties will be added  later, based on the damage assessments by FEMA. Update 8/30/2017: more counties were added by the IRS, to include Colorado, Fayette, Hardin, Jasper, Jefferson, Montgomery, Newton, Orange, Sabine, San Jacinto and Waller Counties.

Tax Relief – Certain Tax Filings and Payment Deadlines Postponed to January 31, 2018

The tax relief postpones to January 31, 2018 various tax filing and payment deadlines that occurred starting on August 23, 2017.

Businesses and individuals that filed extensions for their returns that run out on September 15 and October 16, respectively, have until January 31, 2018 to file their returns. However, keep in mind, that even if you extended your tax return, the 2016 tax was due on April 18th. The extensions extend the time to file, not the time to pay. Thus these payments are not eligible for relief. But, the the 2017 estimated quarterly tax payments get an extension. They were due September 15, 2017, December 15, 2017 and January 16, 1018. Now you have until January 31, 2018 to make these payments.

The quarterly payroll and certain excise tax returns, which were normally due on October 31, 2017 qualify as well for the relief. You have until January 31, 2018 to file them. The IRS will also wave the late-deposit penalties for federal payroll and excise tax deposits normally due after August 23 and before September 7, if you make the deposits by September 7, 2017.

There are other tax filings that qualify and you can read more about them on the IRS disaster relief page:

https://www.irs.gov/uac/tax-relief-in-disaster-situations

Who Qualifies for the Hurricane Harvey Tax Relief

The tax relief applies to taxpayers that have the address of record in the disaster area. The filing and penalty relief is provided automatically, thus you don’t need to contact the IRS to obtain it. In addition, the IRS will work with the taxpayers that, even though they live outside the disaster area, had their records in an affected area. Workers assisting the relief activities affiliated with a recognised government or charitable organisation and other taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

If you need assistance with your accounting or tax fillings, we are here to help. Call us at (832) 919-8448 or request a free consultation.