Preparing for a disaster

These tips should help you prepare for a disaster.

 

1) Document your loss: 

 

As soon as you are able to do so, take photographs or videos of the damage to your property, as well as any repairs made to your property. Be sure to keep receipts for any repair or clean-up work; however, know that costs for repairs or clean-up cannot be deducted on a tax return. Where these expenses are helpful to note is when determining any decline to the fair market value of the property, as long as the expenses are incurred to restore your property to its original condition.

 

2) Know what you should file – and how: 

 

You can claim your casualty loss on Form 4684, Casualties and Thefts. You must be able to itemize deductions on your federal return to be able to claim your loss.

 

3) Do not wait to file a timely insurance claim: 

 

If your property is covered by insurance, you should file a timely insurance claim for reimbursement of the loss. The IRS generally limits your allowed loss to the amount of loss after any insurance reimbursement you got or should have gotten, so file your insurance claims early.

 

4) Spend your insurance reimbursement money wisely: 

 

You have two years to replace any damaged, destroyed, or lost property. If you meet this time requirement, your insurance reimbursement will not be taxable, even if it exceeds your basis in your property. However, if you do not purchase property that is similar or related in service or use to the property you are replacing, part of your reimbursement may be taxable. If the property you are replacing is your home, you may be able to exclude up to $250,000 (or $500,000 if married filing jointly) for your taxable gain. If you are in a federally declared disaster area, the deadline to replace property is extended to four years. Be aware of the guidelines that apply to your situation and plan accordingly.

 

5) Keep track of the payments you receive: 

 

Payments you receive may be excluded or included in income, if restrictions were attached regarding how you spend the money or if you received the payments as part of relief provided to individuals in a federally declared disaster. These payments also affect the calculation of allowable casualty loss. Keep records of all types of disaster relief payments from organizations such as FEMA, documentation or checklists and any Small Business Administration appraisals.

 

 

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.