The cleanup after catastrophic Hurricane Ian can be lengthy and expensive.
Disaster modelers at Enki Research said the total damage could be “over $67 billion,” making Ian one of the costliest hurricanes in U.S. history. More than 1 million homes on Florida’s Gulf Coast are at risk of being destroyed by storm surge, according to CoreLogic real estate researchers.
If you’re damaged by a hurricane, you may be eligible for federal disaster relief, including IRS tax relief, which may come in the form of a quick refund. Here’s what you need to know about claiming hurricane damage on your taxes.
What are hurricane damages for tax purposes?
If your home or personal belongings are destroyed or damaged by a hurricane, you can claim a loss called accidental damage on your tax return. Accidental damage is the result of sudden, unusual or unexpected property damage.
Damage caused by a hurricane, earthquake or tornado will be considered accidental damage. But over time, losses that may be due to termites or normal wear and tear will not count as accidental losses.
For the 2018 through 2025 tax years, your hurricane damage must result from a state-declared disaster before you can report it on your tax return. Federally declared disasters are approved by the President for federal relief to flow to the region.
Days before Hurricane Ian hit the state, President Joe Biden issued a federal emergency declaration for Florida.
How to determine the amount of damage caused by a hurricane
For partially damaged property, your hurricane damage amount is the lesser of:
Adjusted Basis: You must determine your “adjusted basis” on your pre-hurricane property. Typically, your adjustment is based on the amount you paid for the property. Any additions or improvements you make will increase over time and decrease with depreciation. If you acquired the property as a gift or inheritance, your basis may vary and you should consult a tax professional to determine your basis.
Decline in Market Value: You need to determine how the “fair market value” of the property has decreased due to an accident. The IRS considers your fair market value to be the price at which you can sell your property to a willing buyer on the open market. If your property sold for $25,000 before the accident, but sold for $10,000 after the accident, the market value is reduced by $15,000.
Once you have determined the lesser of the two loss calculations, you must deduct any insurance or reimbursement you have received or expect to receive. This gives you the final loss figure for tax purposes.
The right to receive a prize from a refund
In some cases, you may need to report windfall tax benefits from refunds. You may receive a tax benefit if the refund you receive is higher than your adjusted wealth basis. In other words, you may have to pay tax on your reportable gains. If this is the case, it is best to seek help from a tax professional.
How to report hurricane damage on your tax return
All hurricane damages incurred during the tax year are reported on IRS Form 4864, Incidents and Theft. This form will guide you through the amount you can claim.
The IRS requires you to deduct $100 from reported losses related to “personal use property”: items you don’t keep for business purposes or as investments, but only for your personal use and enjoyment. Then, when you add up all your accidental losses for the year, you need to reduce the total by 10% of your Adjusted Gross Income (AGI).
To report your full loss, you must report the deduction on Schedule A of Form 1040. The deductions listed are qualifying expenses that reduce your taxable income.
These rules may not apply to certain losses. Talk to a tax professional to help you deal with unexpected losses.
When Should You Claim Hurricane Damage on Your Tax Return?
Generally, you can report hurricane damages due to a federally declared disaster on your tax return for the year of the disaster or the year before the disaster. Reporting previous year’s losses by amending the current year’s tax return can reduce your previous tax bill and generate a refund.
If you claim a loss for the previous year, you have six months after your tax return is due for the year in which the loss occurred. Here’s an example: You have until October 15, 2022 to amend your 2020 tax return for accidental damage in 2021, because 2021 taxes are due in April 2022.
What if your records are destroyed?
After a hurricane, one of the biggest challenges you may face is rebuilding your records. Recording losses is critical to claiming your losses on your tax return, so the IRS provides many tools to help you recreate your records.
Past tax records
You can request a free transcript of the previous year’s tax return and other tax documents by visiting the IRS’s Get Transcript tool. But, you’ll need your Social Security number, date of birth, registration status, and mailing address to retrieve your information. You will also need to verify your identity by entering personal information from one of your financial accounts, such as a B. mortgage, home loan, credit card, or cell phone account. To do this, you can use this tool to view and download your transcript.
You can also request a copy of your tax return by calling the IRS at 800-908-9946 or by filling out Form 4506-T. If you choose to send your request by mail, please write the name of the disaster in red letters at the top of the form to expedite the process and avoid fees.
Record personal property
Unless you have good records to prove property damage, you will need to identify lost items. You can search for pre-hurricane photos on your phone, search the internet for estimates, and consider contacting your bank or credit card company for previous receipts or statements.
The IRS has also released a workbook that provides step-by-step instructions for identifying hurricane-damaged personal property. You can use this workbook to keep track of items in any room in your home. It also includes columns where you can list expenses, insurance, and market value to help you determine the extent of any losses.
If you need help claiming hurricane damages, you can visit the IRS webpage dedicated to those affected by natural disasters such as hurricane damages.
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