Disaster Losses: How To Recover from Hurricane Harvey

Many have seen the heartbreaking effects that Hurricane Harvey has had on southeastern Texas within the last several days. On Friday, August 25th, the storm slammed onto shore as a Category 4 hurricane and has since weakened to a tropical storm as of Saturday.

The aftermath of Hurricane Harvey has been catastrophic. The death toll of the storm is increasing daily, some areas of Houston have experienced over 50 inches of rain, homes and businesses have been destroyed, and more than 450,000 people are expected to seek federal aid once the storm has ended.

Recovering from such a life altering event is never easy. To be of assistance to those that were affected by the storm, we have provided some very beneficial information regarding disaster area losses and how to recover from a disaster:

Inventory Loss

If a disaster occurs in an area designated by FEMA and your business loses some or all of its inventory, you may choose to deduct the loss on your return or amended return when filing. If you do decide to make this deduction be sure to decrease your opening inventory for the year of the loss so that the loss won’t be reported again in inventories. 

Main Home Loss

If your home is located in a federally declared disaster area, you can postpone reporting the gain if you spend the reimbursement to repair or replace your home. For more detailed information, see Gains Realized on Homes in Disaster (Form 4684).  

Unsafe Home Due To Disaster

Your state or local government may order you to tear down or move your home if it is located in a federally declared disaster area and is no longer safe to live in due to the disaster. If this happens, treat the loss in value as a casualty loss from the disaster. An order for you to tear down or move your home must be given to you by your state or local government only within 120 days after the area was declared a disaster area. 
There are special rules that apply to replacement property. For more detailed information, see Gains Realized on Homes in Disaster (Form 4684). To learn how to figure your loss, click here.  

Qualifications for an Unsafe Home:

  • Your home became substantially more dangerous after the disaster than it was before the disaster. 
  • The danger to the area is from a substantially increased risk of future destruction from the disaster. 

How To Figure Your Loss Deduction

Your loss deduction should be figured under the usual rules for casualty losses, as if it occurred in the year preceding the disaster. Determine how to figure your deduction by clicking here.

Deducting Your Loss in the Preceding Year

If your tax return has already been filed for the preceding year you can claim a disaster loss against that year’s income by filing an amended return. This amended return should be filed on Form 1040X.

  • If you decide to deduct your loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster loss happened, include a statement stating your decision. This statement can be made on the return or filed with the return. 
    • Statement should include: name or description of the disaster, date or dates of the disaster, city, town, county or parish, state, and ZIP code where the damaged or destroyed property was located at the time of the disaster. 
  • If you are claiming a deduction for a disaster loss on the tax return for the year in which the disaster occurred and you wish to deduct the loss in the preceding year, you must file an amended return to remove the previously deducted loss on or before the date you file the return or amended return for the preceding year that includes the disaster loss deduction.
  • Deduction Deadline: If you decide to take your casualty loss for the disaster in the preceding year on or before the date that is six months after the regular due date for filing your original return for the tax year in which the disaster actually occurred.

State Disaster Relief Grants for Businesses

Businesses that receive a grant under a state program to provide reimbursement for losses incurred for damage or destruction of property because of a disaster isn’t excludable from income under the general welfare exclusion, as a gift, qualified disaster relief payment, or contribution to capital. Businesses can choose to postpone reporting gain realized from the grant if it buys qualifying replacement property within a certain period of time.  See Postponement of Gain for rules that apply.

Qualified Disaster Relief Payments

Qualified disaster relief payments are not included in the income of individuals. Also, these payments aren’t subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). No withholding applies to these payments. 
Qualified Disaster Relief Payments include payments that you receive for the following expenses: 
  1. Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. 
  2. Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence (rented or owned) due to a federally declared disaster. 
  3. Reasonable and necessary expenses incurred for the repair or replacement of contents in a personal residence due to a federally declared disaster. 
  4. Amounts paid to individuals affected by the disaster by a federal, state, or local government in connection with a federally declared disaster. 
Qualified Disaster Relief Payments do NOT include:
  1. Payments for expenses otherwise paid for by insurance or other reimbursements 
  2. Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. 

Help Spread The Word 

Do us a favor and share this post with someone that was directly affected by Hurricane Harvey or even someone who may know of others that are currently trying to make their way through the storm. This may be the first piece of the puzzle that they need to begin their recovery process.

As always, ExpressExtension is here to assist you with any tax filing extension that you may need. With ExpressExtension you can e-file a business, personal, or exempt organization tax extension to get up to six months of additional filing time within minutes. If you have questions or need assistance with filing, please don’t hesitate to contact our US based support team. We’re available Monday – Friday from 9 AM to 6 PM EST at 803.514.5155. We also offer live chat and 24/7 email support at [email protected]

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