On Satuday September 13, 2008 the Federal Government declared several Texas counties ( all counties surrounding the Houston area plus several others are included) to be a presidential disaster area qualifying for individual relief. Affected Taxpayers residing in or have a business in the applicable counties now have specific tax deadlines postponed until Jan. 5, 2009. This postponement applies to filing returns, tax payments and other time related and sensitive issues tax issues due on or after September 7, 2008 and before January 5, 2009. This includes individual estimated tax returns with payments and corporate returns that were due September 15, 2008 and extended individual tax returns due October 15,2008. Affected taxpayers also included taxpayers who live outside of the indentified counties but whose books, records, or tax professionals offices are located in the disaster area.
In addition, the IRS has stated it will waive penalties that are due for failing to deposit employment taxes and excise taxes due on or after September 7, and before September 22, 2008 as along as the deposits were made by September 22, 2008. The problem with the September 22, date is that numerous taxpayers in the affected areas did not have electricity until after that date. I guess the IRS never thought it would take as long as it did to turn the electricity back on in the Houston area.
When you suffer a Casualty Loss from a disaster in area declared by the President as warranting federal assistance you may deduct the casualty loss either on the tax return for the year of the actual loss ( tax year 2008) or on the return for the prior year (tax year 2007). Since IKE occurred September 13, 2008, an individual generally has until April 15, 2009 to amend your tax year 2007 tax return ( Form 1040 X and signed statement regarding the disaster) to claim the IKE loss incurred during 2008 on your 2007 taxes. What is the advantage of amending 2007 tax year return you may ask? Well if a taxpayer incurred a significant loss from IKE then the taxpayer might obtain a tax refund quicker (assuming the amended return is filed fairly quickly) by amending 2007 instead of waiting to file year 2008 taxes. The IRS advises that taxpayers who file amended returns for tax year 2007 should write across the top of the return "Texas/ Hurricane IKE" to expedite handling.
All Casualty Losses are reported on Form 4684 and are reduced by 10 % of a taxpayers AGI ( Form 1040 line 37 tax year 2007) and by $100 for each casualty or theft incurred (Individual only). The amount of loss flows from Form 4684 to Schedule A Itemized Deductions but the normal itemized deduction haircut ( reduction based on income) is not applied on the loss from personal use property when a Presidential declared disaster occurs. An individual can deduct personal property losses not covered by insurance or any other type of reimbursement.
The amount of a Casualty Loss is the lesser of :
1) The difference between fair market value ( FMV) immediately before the casualty and its FMV immediately after;
2) The adjusted basis of the property immediately before the casualty( Busines Casualty Loss)
REDUCED BY : All casualty losses are reduced by the amount of insurance proceeds or other compensation received and the amount (if any) for salvage received if the affected item can be sold.
An individual can deduct the loss of items such as their home, auto's, clothing, furniture, appliances, cameras, all other household items, trees, shrubbery, tools, etc. Ideally pictures from a digital camera of affected loss items will make a significant difference in proving an individuals claim to the insurance company and to the IRS.
An individual is not taxed on disaster relief payments from any source that reimburses or pays the taxpayer for unreimbursed costs of repairing or rehabilitiating taxpayers personal residence or replacing its contents. In addition, a taxpayer is not taxed on payments that cover reasonable and necessary lersonal, family, living or funeral expenses as long as these items are not paid by insurance or other reimbursement. Payments made by federal, state and local government to individuals affected by a Presidential declared disaster are always excluded from taxation.