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Tax, Other Relief Available Following Hurricane Ida

Sept. 3, 2021, 6:45 PM

Hurricane Ida made landfall on Aug. 29, slamming into southeast Louisiana. The category 4 storm, packing winds of up to 150 mph, caused extensive damage and left at least one million people without power in the state as it charged north.

By Sept. 1, the storm had made its way to the northeast, killing nearly 50 people in New York, New Jersey, Pennsylvania, and Maryland. Floodwaters rendered public transportation and roads useless, trapping travelers from Pittsburgh to New York City.

We don’t yet know the full impact of the storm, but there are steps that those who have been affected can take now to get relief. Here’s what you need to know to get started.

Disaster Areas

It’s important to understand that federal relief—including tax provisions—often depends on whether you live in an area that has officially been designated as a disaster area by the president. You can check to see if you qualify by clicking over to disasterassistance.gov and entering your city and state or ZIP code in the lookup box on the front page.

If you don’t see your area on the list, check back. Additional sites may be added as the extent of the damage becomes available.

Available Relief

The kind of relief available depends on the nature of the disaster. Most individuals will focus on the Federal Emergency Management Agency’s Individuals and Households Program, which provides financial and direct services to those affected by a disaster. That might include money for temporary housing, funds to help you make repairs, or coverage for medical and funeral expenses. You can apply by calling 1-800-621-3362, but FEMA is warning about long wait times: The fastest way to apply is through disasterassistance.gov.

Tax Extensions

Tax relief is available. The IRS has announced that victims of Hurricane Ida now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments.

The relief is available for taxpayers who live and work in an area designated by FEMA as qualifying for individual assistance. Right now, only those in the state of Louisiana are included but expect that to change. Any taxpayers in areas that are added later will automatically receive the same filing and payment relief. You can find an updated list on the IRS disaster relief page.

Here’s what the relief entails: Most tax filing and payment deadlines which began starting on Aug. 26, 2021, will be extended to Jan. 3, 2022. This includes 2020 individual, business, and non-profit returns with valid extensions. Remember, however, that extensions only extend the time to file and not the time to pay, so if payments were due earlier, those have not been extended.

The Jan. 3, 2022 deadline applies to quarterly estimated income tax payments typically due on Sept. 15, 2021, and quarterly payroll and excise tax returns due on Nov. 1, 2021. Relief also includes a waiver of late-deposit penalties for federal payroll and excise tax deposits typically due on or after Aug. 26, 2021, and before Sept. 10, 2021, so long as the deposits are made by Sept. 10, 2021.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. That means that you do not need to contact the IRS. However, if you receive a late filing or late payment penalty notice and are entitled to relief, you should call the number on the notice to have the penalty abated.

Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 1-866-562-5227. This includes workers assisting the relief activities that are affiliated with a recognized government or charitable organization.

Tax Losses

Taxpayers who suffer financial losses due to a natural disaster—like a hurricane—may be able to claim a casualty loss deduction on their federal income tax return.

As a result of a change in tax laws, financial losses due to natural disasters are now only deductible to the extent they are attributable to a federally declared disaster.

Additionally, you must itemize your deductions to claim a casualty loss on your federal income tax return. For the 2020 tax year, you’ll find the casualty loss deduction at Schedule A, line 15, just below your charitable gifts.

If your property is personal-use property or is not completely destroyed, the amount of your loss is the smaller of your adjusted basis or the decrease in the fair market value of your property due to damage.

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis. For this purpose, your basis is normally what you paid for the item plus any long-term improvements less any depreciation that you previously claimed.

To the extent that you could save part of your property or be reimbursed by insurance, you must report those adjustments. If you expect to be reimbursed by insurance, you have to factor that in, even if you haven’t yet received any money. You can always amend your return—or report the adjustment on next year’s return—if it turns out that you received more or less than expected.

As with most deductions, you’ll want to keep excellent records. It’s a good idea to take pictures of the damage: hopefully, you have some before pictures for comparison. Keep receipts of repairs and replacement values. In some cases, you may need or want to obtain an appraisal.

Casualty losses are generally deductible in the year the loss occurred. However, if you have a casualty loss from a federally declared disaster, you can choose to treat it as having happened in the previous year. This means that you can, if you prefer, claim these losses on your 2020 return. No matter what you decide, be sure to write the FEMA declaration number—4611 for Hurricane Ida in Louisiana—on any return claiming a loss.

Charitable Deductions

If you’re not affected by the storms but want to help, you may be entitled to a tax deduction for your charitable gift, assuming you itemize your deductions.

Before you make a donation, be sure to check with any charitable organizations to find out what they need, since they may not be equipped to receive in-kind donations. And always keep excellent records of gifts, including any appraisals and receipts.

Additionally, the IRS often warns taxpayers about disaster-related scams. Check out any potential charity before you donate: You can confirm charitable status by using the IRS’ Tax Exempt Organization Search tool. Be wary of personal solicitations on your doorstep or over the phone, and make sure that gifts made by credit card or text are secure.

Remember that for tax purposes, you can only deduct contributions to qualified tax-exempt charitable organizations. Donations to individuals are never deductible for tax purposes.

Don’t Get Caught by Surprise

You can take steps now to create a plan in the case that you’re affected by a natural disaster. Read more about how you can protect your tax and other records here.

This is a regular column from Kelly Phillips Erb, the Taxgirl.

Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.

To contact the reporter on this story: Kelly Phillips Erb in Washington at kerb@bloombergindustry.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergindustry.com; David Jolly at djolly@bloombergindustry.com

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