If you live in a major disaster area, you’ve sustained damage to your home or business, and it’s a federally declared disaster area, you may qualify for disaster tax relief. This can help individuals and businesses recover financially from natural disasters. In addition, disaster survivors may get further tax relief from extended filing and payment deadlines for their tax returns.
If you’ve been negatively impacted yourself or follow the news, you’ve seen the kind of destruction that hurricanes, tornadoes, wildfires, and other disasters can have on an area. Not only can it be a terrifying experience, but it could also be financially devastating. To that end, the government has implemented certain tax provisions and other programs to help mitigate qualified disaster losses.
Read on to learn more about disaster tax relief, how taxpayers can claim a deduction for a disaster loss, and other forms of tax relief for those affected within federally declared disaster areas. First, let’s see what it takes to qualify for disaster tax relief and what qualifies as a disaster.
Do you qualify for disaster tax relief?
In order to be eligible for tax relief when disaster strikes, you must be both a taxpayer and a disaster survivor. A disaster survivor is defined in at least one of the following ways.
- You reside in a home that’s within a presidentially declared disaster area.
- Your tax returns or other important documents are in the disaster area.
- You work in the disaster area.
- Your accountant or tax preparer is located within the disaster area.
- You temporarily work in covered disaster areas as a relief worker in some capacity (such as for a government or charitable organization).
Types of disasters
The President can declare a major disaster for any natural or otherwise occurring event that the President decides has caused such extreme damage that it’s beyond the combined capabilities of state and local governments to handle on their own. Naturally occurring disaster emergencies include:
- High water
- Wind-driven water
- Tidal wave
- Volcanic eruption
- Fire, flood, or explosion (regardless of cause)
Kinds of tax relief you can get as a disaster victim
According to the IRS and Federal Emergency Management Agency (FEMA), certain tax considerations may apply to victims in a federally declared disaster area.
“If your area was declared a federal disaster, you may be entitled to claim casualty losses as an itemized deduction on your tax return,” explains Greene-Lewis. “A casualty loss is officially defined as ‘the damage, destruction or loss of your property from any sudden, unexpected or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.’ The loss can be from a natural or man-made disaster.”
That means if your home or business is damaged or destroyed, you can deduct that loss on your federal income tax return on the year in which the disaster loss occurred. You may also be able to deduct the loss from the tax return of the previous year by filing an amended return.
As long as it was a federally declared disaster, victims can take deductions in either of those two years, depending on which year gives them a better tax advantage. It’s important to note that any insurance reimbursement must be subtracted from the total disaster loss and can’t be deducted from your taxes. Plus, the deducted loss must be more than 10% of the adjusted gross income for the tax year by at least $100.
Another tax situation that sometimes applies is the ability to claim disaster losses as a deduction even if you normally just claim the standard deduction. This means you can claim the disaster loss in addition to the standard deduction (as long as the net casualty loss exceeds $500), which will further lower your taxable income reported.
Generally, this was for specific disasters from 2016 to 202o, but tax laws change all the time and may still apply to a future disaster area.
Expedited tax refund
FEMA also explains that the Internal Revenue Service (IRS) can also expedite tax refunds in times of federally declared disasters to any taxpayers in the affected area who are owed a refund. It can be a quick way to get ahold of some cash without needing to pay it back or make an “individual assistance” declaration. Instead, you just need to claim losses related to the disaster on your federal return.
Other tax relief assistance
The IRS has other provisions for those impacted in a federally declared disaster area that can ease the stress of dealing with taxes at a tumultuous time. Usually, this means extended deadlines for various tax purposes, such as:
- Filing tax returns
- Paying taxes
- Making refund claims
- Filing for refunds
These tax relief provisions also apply to an employer who may need more time to pay employees’ payroll taxes or file a tax return. Plus, all normal penalties and interest charges are waived as long as taxpayers and businesses file their tax returns and pay taxes by the new deadlines.
Even those who don’t live in the disaster area, but have their tax records there, are given the same extended deadlines. So, if you live in New York but your tax preparer with all of your data got hit by a hurricane in Florida, you get the benefits of added time to file your tax return and pay taxes.
If you’d rather not rely on another person to file your taxes for you or want some additional tax advice, consider using tax preparation software, such as those below.
Preparing for a disaster
Whether you’ve been through a major crisis before or not, it never hurts to “hope for the best but prepare for the worst.” There are a few easy steps the IRS recommends that taxpayers and businesses can take to safeguard their tax information, other financial records and otherwise prepare for an emergency.
Save documents electronically
One of the simplest ways to store your critical documents — like past tax returns, bank statements, and other important paperwork — is to have them delivered electronically through email. This method is also greener for the planet and saves space in your filing cabinet.
If you have hard copies of W-2s or other documents, like insurance policies, you can always scan them and save them electronically, too. You can create a separate file folder for them on your computer or even just email them to yourself so you know where to find them when you need them.
Be sure to back up all of your information and consider storing them in another location as well. For example, you could send your documents to a trusted friend or family member in case you’re unable to retrieve them from your own home, business, or computer.
Document your belongings and business equipment
If your home or business is partially damaged or completely destroyed, it’s important to know what you have so that you can make accurate property insurance claims. The better your records are of your belongings, the quicker you can get paid and start putting your life back together.
The IRS has workbooks for individuals and businesses, but you can easily make room-by-room lists on your own and store them with your other important documents. You can also take photographs or make a video, especially of your more expensive items or business equipment. It’s also a good idea to save your receipts to help verify the market value of pricier objects.
Other important disaster-preparedness plans
The IRS also recommends the following tips, procedures, and plans that individual taxpayers and businesses should implement. This will help you not only survive and recover from a disaster but also help you be prepared before anything catastrophic happens.
- Stay informed about hazards and emergencies and learn what to do for specific hazards.
- Develop an emergency plan.
- Learn where to seek shelter from all types of hazards.
- Back up your computer data systems regularly.
- Decide how you will communicate with employees, customers, or family members.
- Use cell phones, walkie-talkies, or other devices that do not rely on electricity as a backup to your telecommunications system.
- Collect and assemble a disaster supplies kit, including a portable generator.
- Identify the community warning systems and evacuation routes.
- Include required information from community and school plans.
- Practice, maintain, and update your plans as needed.
Documenting damage after a disaster
If a disaster already occurred, it’s also important to carefully document the damage or destruction you’ve experienced, along with any repairs or replacements you’ve done. Before and after pictures can be very useful.
The better you document what’s happened to your property, the more smoothly the insurance and tax proceedings will go.
What other federal assistance is available for disaster survivors
Depending on your situation, you may qualify for other assistance if you’re within a major disaster area, according to FEMA. Programs that may be useful for survivors of disaster areas include temporary housing help and crisis counseling. Legal services are also available, with help concerning a variety of services.
- Assistance with insurance claims (life, medical, property, etc.)
- Counseling on landlord/tenant problems
- Assistance in consumer protection matters
- Replacement of wills and other important legal documents destroyed as a result of a disaster
Are there local provisions for victims of natural disasters?
“In addition to the relief offered by the federal government, many states and local governments have their own provisions for victims of natural disasters. These may include deferring taxes or offering a special deduction based on losses due to the disaster. Check with your state and local government for more information on available tax relief for those affected by a natural disaster,” advises Sanborn.
Do scammers take advantage of people victimized by disaster?
Unfortunately, there are certain types of people who hear about a disaster and see ways to make money from other people’s suffering. Unscrupulous groups or individuals may go after vulnerable victims themselves or those who donate to victims. Be sure to verify any charity or organization before getting involved.
- The IRS offers a number of tax relief provisions for victims of disasters. This includes property loss deductions, expedited refunds, and extended deadlines to file and pay taxes.
- A federally declared disaster can include naturally occurring hurricanes, tornadoes, and other storms, but also fires, floods, and explosions regardless of the cause.
- Other federally-assisted programs for eligible victims in disaster areas include legal services, crisis counseling, and temporary housing, among others.
- Preparing for a disaster in advance means having emergency plans in place, documenting your belongings, and storing tax and other financial records electronically or in a safe place outside of the disaster area.
View Article Sources
- A Guide to the Disaster Declaration Process — U.S. Department of Homeland Security
- Disaster Assistance and Emergency Relief for Individuals and Businesses — IRS
- Financial Assistance Within Designated Natural Disaster Areas — USA.gov
- Best Tax Relief Companies — SuperMoney
- IRS News on Refunds: IRS Will Refund $1.2B in Late-Filing Penalties — SuperMoney
- IRS Letters and Notices: What To Do If You Got One — SuperMoney
- 10 Common Mistakes When Filing Your Taxes — SuperMoney
- How To File Taxes in 2023: Complete Guide — SuperMoney
- Can Debt Collectors Take Your Tax Refund? — SuperMoney
- What Is Considered Early Tax Filing? — SuperMoney
- How to Guarantee You Will Get a Tax Refund Next Year — SuperMoney
- What Does Tax Topic 151 Mean for Me? — SuperMoney
- Tax Topic 152 Refund Information: Is It Good Or Bad? — SuperMoney
- Bank Rejected Tax Refund: What Can You Do? — SuperMoney
- How to Get Free Tax Help — SuperMoney
- Best Tax Preparation Firms — SuperMoney