After Hurricane Ian, Here’s How The IRS Can Help With Your Recovery
The cleanup from catastrophic Hurricane Ian is likely to be long and expensive.
Disaster modelers with Enki Research say the damage could total “upwards of $67 billion,” which would make Ian one of the costliest hurricanes in U.S. history. Real estate researchers at CoreLogic say more than 1 million homes along Florida’s Gulf Coast were at risk of being devastated by storm surge.
If you suffer a hurricane loss, you may qualify for federal disaster aid, including tax relief from the IRS that could take the form of a quick refund. Here’s what you need to know about claiming a hurricane loss on your taxes.
What Is Considered a Hurricane Loss for Tax Purposes?
If your home or personal belongings are destroyed or damaged by a hurricane, you may be able to claim a loss, known as a casualty loss, on your tax return. A casualty loss is the result of any property damage that is sudden, unusual or unexpected.
A loss from a hurricane, earthquake or tornado would qualify as a casualty loss. But a loss over time, maybe due to termites or just normal wear and tear, would not qualify as a casualty loss.
For tax years 2018 to 2025, your hurricane loss must stem from a federally declared disaster in order for you claim it on your tax return. A federally declared disaster is authorized by the president so federal disaster assistance can flow to the affected area.
President Joe Biden issued a federal emergency declaration for Florida days before Hurricane Ian struck the state.
How To Determine the Amount of Your Hurricane Loss
For property that is partially destroyed, the amount of your hurricane loss is the smaller of two amounts:
- The adjusted basis: You must determine your “adjusted basis” in your property before the hurricane. Typically, your adjusted basis is the amount you paid for the property. It increases over time for any additions or improvements you make, and decreases through depreciation. If you acquired the property as a gift or an inheritance, your basis may differ, and you’ll want to speak with a tax professional to determine your basis.
- The decline in fair market value: You must determine how the “fair market value” of the property declined as a result of the casualty. The IRS considers your fair market value the price at which you could sell your property to a willing buyer in the open market. If your property would have sold at $25,000 before the casualty but $10,000 afterward, then the decline in fair market value is $15,000.
Once you’ve determined the smaller amount from the two loss calculations, you’ll need to subtract any insurance or reimbursement you’ve received or expect to receive. That will leave you with a final loss figure for tax purposes.
Claiming a Gain From a Reimbursement
In some cases, you may need to report a casualty tax gain from reimbursement. If you receive a reimbursement that is more than the adjusted basis of your property, you could have a tax gain. In other words, you may have to pay taxes on the reportable gain. If this is the case, it’s good to speak with a tax pro for assistance.
How to Report Your Hurricane Loss on Your Tax Return
Any hurricane losses that occur within the taxable year are reported on IRS Form 4864, “Casualties and Thefts.” This form will guide you through the amount you can claim.
The IRS requires you to subtract $100 from your reported losses involving “personal-use property”: stuff you don’t use for business or keep as investment but merely own for your personal use and enjoyment. Then, once you add up all of your casualty losses for the year, you must reduce the total by 10% of your adjusted gross income (AGI).
There are certain losses for which these rules may not apply. Speak with a tax professional to help assist you with your casualty losses.
When Should You Claim Your Hurricane Loss on Your Tax Return?
Generally, you can claim a hurricane loss resulting from a federally declared disaster on the tax return for either the disaster year or the year preceding the disaster. Claiming a loss in a prior year, by amending that year’s return, may reduce your previous tax bill and generate a refund.
If you choose to claim your loss on the prior year’s tax return, you have six months from the original due date for the prior year’s return to amend it and deduct the loss. Here’s how that works: You have until Oct. 18, 2022, to amend your 2021 tax return for a casualty loss that occurs this year, because 2021 taxes will be due in mid-April 2022.
What To Do If Your Records are Destroyed?
After a hurricane, one of the major challenges you may face is reconstructing your records. Documenting the damage is essential for claiming your loss on your tax return, so the IRS provides many tools to help recreate your records.
Prior Tax Records
You can request free transcripts of your prior year’s tax returns and other tax records by visiting the IRS Get Transcript tool. You will need your Social Security number, date of birth, filing 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 mortgage, home equity loan, credit card or cellphone account. This tool allows you to view and download your transcripts.
You can also request your tax records by calling the IRS at 800-908-9946, or by mailing Form 4506-T, Request for Transcript of a Tax Return. If you decide to mail your request, write the name of the disaster in red letters across the top of the form to expedite the process and avoid any fees.
Documenting Personal Property
If you do not have good records to prove a property loss, you will need to identify lost items. You can comb through your phone for any pictures that were taken before the hurricane, search the internet for cost estimates, and consider contacting your bank or credit card company to obtain prior receipts or statements.
The IRS also publishes a workbook that provides a step-by-step guide to help identify personal property damaged by a hurricane. This workbook allows you to record items from each room of your home. It also provides columns for you to list costs, insurance and fair market values to help you determine the extent of any losses.
Here’s a sample:
If you need assistance with claiming your hurricane loss, you can view the IRS’ webpage designated to those impacted by natural disasters, such as a hurricane loss.