The information in this article is up to date through tax year 2019 (taxes filed in 2020).
The damage done by a natural disaster can be devastating, and it can take months or even years to recover. The IRS offers a certain amount of tax relief to taxpayers who are filing in a federally declared disaster area or whose tax records are kept in an affected area. Here’s what you should know if you are ever impacted.
Types of tax relief in a natural disaster
Extended deadline for tax filing- If you live or keep tax records in a federally declared disaster area, the IRS will give you extra time to file your tax return and to pay your tax bill if you have one. Any penalties or interest owed may also be lessened during that extended period. The length of the extension and the exact postponed due date will be specified on the IRS website, according to the natural disaster, here.
Free access to retirement accounts – Borrow up to $100K from a retirement plan to pay for damages.
Casualty deductions- Deduct damage done to your home by an officially declared disaster. Subtract $100 from the amount of damage caused. Then subtract 10% of your adjusted gross income. This does not include any amount not covered by insurance.
Faster access to tax refunds – Individual taxpayers and businesses in a federally declared disaster area can claim losses related to the disaster on the tax return for the previous year and receive their refund in a shorter amount of time. This is usually done by filing an amended tax return.
What are the rules for claiming natural disaster tax relief?
Only federally declared disasters qualify for the tax relief provision. Check this page from the IRS to see if a disaster in your area is included.
You are covered if your tax records fall in the federally designated disaster area. This makes you an “affected taxpayer” who is eligible for unique tax benefits. This does not apply just to individuals, but also business owners, sole proprietors, and business entities. Also, if your tax preparer lives in the disaster area, you may qualify for relief, even if you live outside the area.
How do I apply to have my return extended after a natural disaster?
If you live in the affected area, the IRS will automatically apply the filing and payment relief to your return. But if you live outside the area and your records or business are affected by the disaster, you may need to contact the IRS so they know that you are affected and do qualify for the tax relief provisions.
To have your return extended you must:
- Call the Disaster Assistance Hotline at 1(866)-562-5227.
- Say that your records are in a covered disaster area.
- Provide the FEMA number of the county where your tax preparer is located.
How can I protect my tax documents from a natural disaster?
There are several ways to ensure the safety of your tax and other legal documents.
- Back up your records electronically.
- Store them in a weatherproof and fireproof box.
- Keep a second copy in a secured location away from your home.
Were your tax records damaged? To obtain a free copy or transcripts of previously filed tax return, you can submit Form 4506, Request for Copy or Transcript of Tax Form to the IRS.