The effects of hurricane season are felt long after the storms pass. Hurricane Harvey hit the Texas Gulf Coast in late August and dumped a record amount of rainfall, flooding major cities and leaving extreme damage in its wake.
In September, Hurricane Irma and Maria left widespread devastation across the Caribbean, Florida, Georgia, South Carolina and Puerto Rico. In light of these catastrophic events, special tax relief and assistance has been expanded to taxpayers in the following U.S. territories and states:
- S. Virgin Islands: the islands of St. John, St. Thomas, and St. Croix
- Puerto Rico: all municipalities.
- Florida: all counties
- Georgia: all counties
Specific tax relief information is detailed below.
Deadline Extension Relief
Individual and business taxpayer victims of Hurricane Harvey, Irma and Maria may qualify for additional extensions of certain tax deadlines. In a recent blog, we provided details on tax deadline extension relief to victims of Hurricane Harvey and Hurricane Irma.
Casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected or unusual event, such as a flood, hurricane, tornado, fire, earthquake or volcanic eruption. It does not include normal wear and tear or progressive deterioration.
Casualty losses are deductible in the year the casualty occurred. If you have a casualty loss from a federally declared disaster (see above), you can elect to treat the casualty loss as having occurred in the year immediately preceding the tax year in which the disaster happened. You can deduct the loss on your return or amended return for that preceding tax year (2016) under Code Section 165(i).
If your property is personal-use property or isn’t completely destroyed, the amount of your loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty. If the 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.
Individuals are required to claim their casualty and theft loss as an itemized deduction on Schedule A of the taxpayer’s 1040. It is calculated by taking the amount of the loss, less any insurance reimbursements. From that amount, $100 is subtracted, and then 10% of your adjusted gross income is also subtracted to arrive at your allowable casualty and theft loss for the year.
Retirement Loans and Withdrawals
Retirement plans, such as 401(k)s and similar employer-sponsored retirement plans, can make loans and hardship distributions to victims and members of their family. To qualify for the relief, the hardship distributions must be made by January 31, 2018. A complete list of FEMA eligible localities can be found at https://www.fema.gov/disasters.
The IRS is relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. This includes the following actions:
- Plan participants will be able to easily access their money to take a hardship distribution or borrow up to the specified statutory limits of their plan.
- A person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
- Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide relief features.
- Hardship distributions can be used toward food and shelter.
Please note that the IRS tax treatment of loans and distributions remains unchanged. Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Hardship distributions are generally taxable and subject to a 10% early withdrawal tax.
Hurricane season officially ends November 30, but it will be months after that before normalcy is restored for those who have been affected. Our thoughts are with all who have been impacted by the recent hurricanes. For assistance on the financial impact to your business, please contact Rudi Beagles at 813-288-8826 or email Rudi.