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Tuesday, April 25, 2017

Natural Disasters and Tax Benefits

By the RestorationSOS Educational Staff

Water damage or other disasters bring with them any number of headaches – the level of damage that is caused, the cost and time associated with getting it all cleaned up, and of course, the requisite insurance woes (which can be considerable when, as in the case of water damage, the problem is not covered by your homeowners' policy). In fact, the more you look into it, there is precious little good to be found in such cases, except for maybe the fact that you're going to get a fully restored property out of the deal once the dust has settled (or the water receded).

2011 saw a record number of natural disasters with billion-dollar price tags, and property owners who suffered in these losses should be aware that they may be able to recoup some of that loss on their federal returns. There are special provisions that exist, allowing property owners to claim these losses in the event of a disaster, and even smaller cases of damage may be claimed if the loss exceeds what was paid for by insurance.

Defining a Casualty Loss

The Internal Revenue Service defines a casualty loss as "the damage, destruction, or loss of property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption."

There were at least 12 major natural disasters in 2011 that met the description above, the most prominent of which was Hurricane Irene which left a trail of destruction along the East Coast from the Carolinas northward.

Losses of this type are generally regarded as any other casualty loss on tax returns. Damage as a result of general wear and tear or neglect is eligible for tax purposes. Also, losses covered by insurance will not be eligible for tax deduction.

Claiming Tax Relief

Taxpayers who are located in federal disaster areas have the option of taking a deduction for their losses on their current return, or filing an amended return for previous years. According to the IRS, this is preferable for those property owners seeking to put money in their pockets immediately.

Disaster victims are encouraged to work with their tax adviser to determine which course of action is more beneficial. The IRS can also provide copies of previous tax returns if the property owners’ records were destroyed as a result of the disaster.

Being the victim of a disaster may also mean that you are granted a proper extension for the filing of taxes. Check out the IRS disaster relief website for additional details.

Of course it helps to be organized and prepared before disaster strikes, so a proper inventory of possessions should be assembled in anticipation of future problems. A detailed list of your possessions as well as a photographic or video record will prove invaluable in the wake of a fire or flood.

The IRS also recommends electronic storage of all valuable items; bank statements, W-2s, and previous tax records may be stored electronically. Paper records should be copied, with copies stored offsite (such as in a safety deposit box) in the event the property is severely damage or destroyed.

Recommended Reading
Facts about the National Flood Insurance Program
Preparing for Hurricane Season

Learn More about Natural Disasters and Tax Relief in this Video:

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