The IRS issued tax relief for Hurricane Ian victims in Florida, South Carolina, and North Carolina. Certain filing and payment deadlines between Sept. 23, 2022, and Feb. 15, 2023, will be postponed to Feb. 15, 2023. Taxpayers experiencing significant property damage may be able to claim a casualty loss.
Extended Due Date – Filing And Payment Relief
Affected individuals and businesses will now have until Feb. 15, 2023, to file returns and pay any taxes that were originally due during the period of 9/23/22 to 2/15/23. ∙ This includes taxpayers with valid extensions to file their 2021 personal returns that ran out on Oct. 17, 2022.
- The relief does not include payments related to these 2021 returns because those payments were due on April 18, 2022.
- For tax year 2022, 4th quarter personal estimated tax payments that were due on January 17 are now due February 15.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.
- However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
For 2018‐2025, personal casualty losses are not deductible unless attributable to a federally declared disaster or, if the taxpayer has a personal casualty gain, to the extent of such gain.
To claim a casualty loss, a taxpayer must itemize their deductions (opposed to the standard deduction).
- Taxpayers may elect to claim disaster losses in the preceding tax year (2021 tax return‐‐‐ election under IRC 165(i) with original OR amended return).
Computing the loss and deduction:
Step 1: The lesser of:
- Adjusted basis in the property before casualty, or
- Decrease in FMV immediately before/after casualty
Step 2: Subtract insurance or reimbursement received or expected.
Step 3: Subtract $100 per event NOT per item
Step 4: Reduce total of all casualty losses by 10% of AGI.
- Example: A taxpayer with $120,000 in AGI suffers a casualty loss in the amount of $30,000 (after applying Steps 1 & 2, above). The taxpayer must first subtract $100 from the casualty loss and then must subtract 10% of AGI. $30,000 casualty loss ‐ $100 limitation ‐ ($120,000 x 10% = $12,000) = $17,900 casualty loss. That casualty loss is captured as an itemized deduction.
Business and income‐producing property: Casualty losses are NOT subject to the $100 per event and 10% of AGI limits (Schedules C & E).
Personal Casualty Gain: To the extent insurance reimbursement exceeds the casualty amount (recovery exceeds tax basis), the profit is currently taxable.
- Exception: If the insurance reimbursement is reinvested in similar‐use property, tax is postponed until the replacement property is sold under IRC Sec 1033(h).
Qualified Disaster Relief Payments
Employees and other individual taxpayers who incur expenses or suffer losses or hardship as a result of a federally declared disaster may receive benefits or assistance from their employers or other parties that are excludable from income under IRC Sec 139 as ‘qualified disaster relief payments.’
- Qualified disaster relief payments include amounts paid to or for the benefit of an individual for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, but do not include expenses paid for by insurance or other reimbursement or income replacement payments.
- An employer may deduct a qualified disaster relief payment to an employee as a trade or business expense.
SBA Disaster Loans For Businesses & Homeowners
The SBA regularly offers low‐interest loans with favorable terms to businesses which have been affected by natural disasters. Loans are also available for homeowners who experienced extensive damages. Loans are available at rates as low as 2.188% for homeowners and 3.04% for businesses. More information can be found on the SBA’s website at: https://disasterloanassistance.sba.gov/ela/s/
Often, Congress adopts a relief package for victims of major `qualified’ disasters. The last such package applied to disasters in 2020 and provided for several additional or enhanced relief provisions. Not the least of which were less restrictive limitations on recognizing tax‐deductible casualty losses. Under this package, the $100 reduction per event was replaced with $500, the 10% of AGI reduction was eliminated. Furthermore, the taxpayer’s standard deduction was increased by the casualty loss (i.e. did not have to itemize). Stay tuned
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