How IRS and Tax Laws Offer Relief for Victims of Helene, Milton, and Other Disasters

How IRS and Tax Laws Offer Relief for Victims of Helene, Milton, and Other Disasters
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Late in September 2024, Hurricane Helene made landfall in the United States, wreaking havoc throughout Florida, Georgia, North Carolina, Tennessee, and other states in its path. Without accounting for damage to boats, offshore property, or losses to the National Flood Insurance Program, insurers are projected to lose around $6 billion due to Hurricane Helene.

Furthermore, Hurricane Milton has harmed Florida much more.

This year, numerous more disasters have been officially proclaimed by the federal government, such as the severe storms and flooding in several states, Hurricane Debby, wildfires in Washington, tropical storms in Louisiana and Pennsylvania, and extensive flooding in Illinois.

The victims of Milton, Helene, and other federally declared disasters might benefit from understanding the tax laws during this wild weather season of floods, hurricanes, wildfires, and more.

The IRS routinely offers extensions for tax filing and payment in addition to this.

Subtracting Losses

Itemizers may deduct personal casualty losses to the degree that the losses are related to widely distributed, federally declared catastrophes like hurricanes, earthquakes, wildfires, blizzards, or flooding.

To the extent that insurance does not reimburse personal losses, individuals may deduct such losses on Schedule A of Form 1040. Your loss is equivalent to the lesser of the adjusted basis or value decline of the destroyed property, less any funds from insurance that you have received or anticipate receiving.

Calculate your losses using Form 4684, then move the money to Schedule A, line 15. Damage to nonbusiness property is a deduction that can only be made by itemizers.

Additionally, there are two offsets:

  • First, you deduct $100 from the loss that you compute.
  • Only the amount that exceeds 10% of adjusted gross income is deductable from the balance (more lenient restrictions apply for claiming losses from catastrophes in 2018, 2019, and 2020.)

Business Setbacks

More lenient regulations apply when it comes to deducting casualty losses from corporate assets. Nonitemizers may deduct losses, and a business casualty loss need not be related to a region that has been officially designated as a catastrophe. Additionally, the $100 and 10%-of-AGI offsets are not applicable.

Secure Harbors

It might be challenging to estimate how much your house or possessions will be damaged. Fortunately, the IRS provides many safe harbors to assist you in performing this computation.

Which Year’s Losses Should Be Subtracted?

You may deduct disaster losses for 2024 on your federal tax return for 2023 or 2024. This is so that people have the option of accepting the loss on either the return for the year of the tragedy or the return for the year that was just before the disaster.

You can file Form 1040-X to alter your 2023 Form 1040 to include the write-off if you have already filed it. Please take note that the filing deadline for an updated 2023 return is six months following the regular 2024 return filing date. This corresponds to October 15, 2025, for disaster losses in 2024.

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Retirement-Related Relaxations

The SECURE 2.0 legislation, passed by federal lawmakers in late 2022, provides several new reliefs connected to retirement for victims of disasters.

Up to $22,000 per federally declared catastrophe is exempt from the 10% penalty on pre-age-59½ distributions from employment retirement plans and individual savings accounts (IRAs). Within 179 days of the disaster’s declaration, the payout must be collected. Unless you want to pay it all at once, tax on these qualifying disaster payouts can be spread out over a period of three years.

Recontributed amounts to the retirement account are considered nontaxable rollovers if they are made within the three-year period that starts on the day following the qualified catastrophe distribution date.

You can recover income tax you paid on a distribution by filing an updated return on Form 1040-X within three years of the distribution if you roll over the distribution.

From employer plans like 401(k)s, eligible individuals can borrow more, up to 100% of the account amount or $100,000 less. Additionally, if the plan permits this disaster aid in any other way, repayment terms may be extended by a year.

Refunds for predisaster payouts used to purchase a home in a disaster area are allowed under retirement plans, as long as the money wasn’t utilized to purchase a house in the end. Generally, you have 179 days starting on the day the crisis is officially proclaimed a federal emergency to return the money in a nontaxable rollover.

Read Also: Hurricane Milton’s Aftermath: Thousands of Gas Stations in Florida Without Fuel

IRS Disaster Resources

When it comes to disaster-related matters, the IRS can be your ally. There are several ways to obtain your tax information if you misplaced your previous year’s tax returns. To read and print an automated phone transcript, use the IRS’s free “Get Transcript” service on its website.

Alternatively, you can mail Form 4506-T to the IRS or call its automated phone transcript line at 800-908-9946. Mail Form 4506 to receive your actual return.

For tax-related inquiries about disasters, you can also reach the IRS by phone at 866-562-5227.

Reference

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With more than two years of expertise in news and analysis, Eileen Stewart is a seasoned reporter. Eileen is a respected voice in this field, well-known for her sharp reporting and insightful analysis. Her writing covers a wide range of subjects, from politics to culture and more.