When natural disasters occur, many people are often left with damaged or destroyed homes and businesses. Some lose everything they own. If you are affected by a disaster that is declared by the president to qualify for federal assistance, there are several provisions in the tax law that may provide relief:
- Extended tax deadline and interest abatement. The IRS is authorized to postpone the deadlines for filing returns and paying taxes for up to 120 days in a federally declared disaster area. Also, the IRS will not charge interest that would otherwise accrue for the extension period.
- Faster refund. Taxpayers suffering losses in a federal disaster area have a choice of which tax year to deduct the casualty loss. You may deduct it on the return for the year the loss occurs, or it can be claimed on your prior year’s tax return. Amending your prior year’s return may give you a refund of much-needed cash sooner than waiting to deduct the loss on your current year’s tax return.
- Tax-free gain. If the insurance payments you receive exceed the tax basis of your property, you will end up with a casualty gain. Casualty gains in federally declared disaster areas receive special tax treatment.
For example, individuals may qualify for up to a $250,000 gain exclusion ($500,000 for married couples) on their principal residence. That’s because the destruction of the residence is treated as a sale for tax purposes.
If you suffer a casualty loss, schedule a meeting today to discuss the best tax course of action in your situation: https://bas-pc.com/schedule