Tax breaks for victims of hurricane irma

Tax breaks for victims of hurricane irma

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Tax breaks for victims of hurricane irma
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Old 09-15-2017, 12:20 PM
Bloom&Company Bloom&Company is offline
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Default Tax breaks for victims of hurricane irma

TAX BREAKS FOR VICTIMS OF HURRICANE IRMA

CALL BOB BLOOM CPA 425 941 5224 if you would like to meet and start planning for tax season!

The recent hurricane in Florida was devastating; both lives and property were lost. Property losses from this and other casualty events may be covered by insurance. However, insurance may not adequately compensate individuals and businesses for property damage and destruction. Tax breaks may provide some economic help.
Determining the Amount of the Loss
The loss is reduced by any insurance and other reimbursements and by $100. If a taxpayer has insurance a claim must be made, even if it may cause premiums to increase or the insurance company drops coverage. If a taxpayer has some coverage but no claim is made, no deduction can be taken.
After determining the amount of the loss from a casualty, then total losses for the year are deductible as an itemized deduction to the extent they exceed 10% of adjusted gross income (AGI).The casualty loss is an itemized deduction claimed on Schedule A of Form 1040 (i.e., itemizing is required to take a casualty loss deduction). However, the loss is not subject to the phase-out of itemized deductions for high-income taxpayers.
Disaster Losses
If the loss occurs within an area declared eligible for federal disaster relief from the Federal Emergency Management Agency (FEMA), then there is a helpful tax option to consider. The loss can be claimed on a tax return for the year of the casualty event or for the prior year. Claiming the loss for the prior year entitles a taxpayer to receive a tax refund, which can be used to help rebuild after the disaster. The IRS lists areas qualifying for this disaster relief at Tax Relief in Disaster Situations | Internal Revenue Service, include Sumter, Lake, and Marion counties for Hurricane Irma. To claim the loss on a prior year return, take the loss into account if the return has not yet been filed. If the return for the prior year has already been filed, then an amended return is necessary. In deciding whether to take the loss on the current or prior year return, it usually makes sense to claim it in the year in which adjusted gross income is lower so that a greater portion of the loss is deductible (i.e., more of it exceeds 10% of AGI), but tax rates also have to be considered.
Due to Hurricane Irma, the IRS has provided some tax relief, such as extending the time for filing returns and making estimated tax payments, etc.
Mitigation Payments and Reimbursements
Mitigation payments. Qualified disaster relief payments for the benefit of the owner of any property for hazard mitigation are excludable from gross income. The basis of property is not adjusted for the payments.

FEMA payments under the Individual and Households Program (IHP) to individuals are also tax free. However, a taxpayer who receives a FEMA IHP repair assistance payment or replacement assistance payment must reduce the amount of any casualty loss attributable to the damaged or destroyed residence by the amount of the FEMA IHP payment. In addition, the recipient must reduce the tax basis in the damaged or destroyed residence by the amount of the FEMA IHP repair assistance payment or replacement assistance payment, as well as by the amount of the allowable casualty loss deduction attributable to the damaged or destroyed residence. If the recipient repairs a damaged residence, the cost of repairs ordinarily is capitalized and added to the recipient’s tax basis in the damaged residence.
Reimbursements. If a taxpayer claimed a casualty loss deduction and, in a later year, receives reimbursement for the loss, the taxpayer reports the amount of the reimbursement in gross income in the tax year it is received to the extent the casualty loss deduction reduced the taxpayer’s income tax in the year in which the taxpayer reported the casualty loss deduction; the taxable amount is determined under the tax benefit rule. If the reimbursement exceeds the amount of the casualty loss deduction, the taxpayer reduces basis in the property by the amount of the excess. The taxpayer includes such excess in income as gain to the extent it exceeds the remaining basis in the property, unless such gain is excludable from income or its recognition can be deferred as gain from an involuntary conversion.
Conclusion
If you have had a significant loss due to the hurricane please call me so we can discuss the best tax strategies for you.

Robert Bloom CPA
425 941 5224
Bobbloomcpa@aol.com

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