John R. Bullis: Claiming casualty losses
October 9, 2017
Congress has special rules that apply when a loss results from a casualty like hurricanes Harvey or Irma.
Victims have more time to file their 2016 income tax returns — until Jan. 31, 2018. And they also have until Jan. 31, 2018, to pay the estimated tax payments due Sept. 15 and the following Jan. 16, 2018.
Employers can help employees pay for home repair expenses, personal, living, family and funeral costs if the amounts aren't covered by insurance. Those qualified disaster payments aren't taxable to the employee and the employer can deduct them as expenses.
Victims of Harvey or Irma can get quicker distributions from qualified employer retirement plans. The payments will be taxable and the 10 percent early withdrawal penalty may apply, but the distributions can be quicker.
There's a choice of claiming the loss on either the 2016 or 2017 individual income tax returns. Depending on the facts, that might save tax if one of the years has a lot more income.
On the other hand, the loss is the lesser of your property's adjusted tax basis (usually your cost) or the decline of value. But for individuals, the loss is reduced by $100 (per incident) and 10 percent of Adjusted Gross Income (page 1 of form 1040, line 37). But if an individual suffers a casualty loss, i.e. home damages, it must be claimed on Schedule A of form 1040 as an Itemized Deduction.
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Business casualty losses aren't reduced by the $100 per incident or the 10 percent of Adjusted Gross Income and you don't have to claim a business casualty loss on Schedule A-Itemized Deductions.
Form 4684 is used to give the information and computation of the loss deduction. IRS publication 547 has details and should be a help in computing the loss deduction and other matters.
Documentation is important. Photographs, receipts, estimates of decline in value by appraisers and a log of miles traveled could be helpful. Maybe a diary or journal could be done to keep track of who did what repairs, who you contacted, etc.
The IRS website, irs.gov, will allow you to print off a copy of form 4684 and the instructions. You can also print out a copy of the IRS publication 547 that has more details and information. That part of IRS is working fairly well and you don't have to wait on the telephone to do it!
If you have friends or relatives that were hurt by those (or other) storms maybe you could remind them of the possible tax deductions that will reduce their income tax.
Did you hear, "The darkest hour is only 60 minutes?"
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.