Natural disasters can be devastating for its victims whether a business or an individual. To receive federal funding assistance, it must be declared a disaster area by the president. In a disaster, most victims are left with their possessions heavily damaged, or completely destroyed, leaving them with nothing. If you qualify for federal assistance, the new tax code provisions may offer some relief. The 3 tax law provisions are:
1.) Extended tax deadlines and Interest abatement. For natural disasters, the IRS has the authority to postpone deadlines for filing tax returns and paying taxes up to 120 days. In addition, for the extension period, the IRS will not charge interest that may have otherwise accrued during this time.
2.) Your refund. For taxpayers that suffer losses in a federal natural disaster area, you may choose which tax year to deduct your casualty loss. You will be able to deduct the losses in the year in which the loss occurred or you can claim the loss on your prior year’s income tax return. Rather than waiting to claim your losses on the current year’s tax return, you will get a faster tax refund if you choose to amend the prior year’s tax return to claim losses.
3.) Tax free gain. You will end up with a casualty gain if you receive insurance payments that exceed the tax basis of your property. In federally declared disaster areas, casualty gains receive special treatment. For example:
For tax purposes, the destruction of an individual’s residence is treated as a sale. Individuals may qualify for up to $250,000 and married couples up to $500,000 of gain exclusion on their principal residence.
At Summit CPA we offer multiple resources to assist you with all of your tax and financial planning needs. Contact our office at 866-497-9761 to schedule an appointment with our advisors