In the aftermath of a natural disaster, the IRS may step in as an unexpected ally in your financial recovery. If you’ve been impacted by a federally declared disaster (as determined by the President and FEMA), you may benefit from postponed deadlines for filing returns and making tax payments. Additionally, Congress may allow you to claim disaster losses for damage to your home, property or business. Though navigating these options can be complex, careful planning can guide you toward a strategic revival.

Who is Eligible for Disaster Relief?

Taxpayers who live, work, or have records in a federally declared disaster zone may be eligible for relief. You do not have to be directly affected by the disaster to qualify. Also eligible are:

• Visitors to the disaster zone who suffered injury or loss during the disaster.
• Businesses with their principal address within the zone.
• Taxpayers whose tax preparers are in the zone.

If your IRS-registered address is within a disaster zone, relief is granted automatically. Otherwise, contact the Disaster Hotline at 866-562-5227 or work with your tax advisor.

Eligible Areas for Hurricanes Debby, Helene, and Milton

State	Eligible Counties
Alabama	All
Florida	All
Georgia	All
North Carolina	All
South Carolina	All
Tennessee	Carter, Cocke, Green, Hamblen, Hawkins, Johnson, Unicoi, and Washington
Virginia	Bland, Bristol City, Buchanan, Carroll, Craig, Dickenson, Galax, Giles, Grayson, Montgomery, Pittsylvania, Pulaski, Radford, Russell, Scott, Smyth, Tazewell, Washington, Wise, and Wythe Additionally – Bedford, Covington, Danville, and Norton cities

What Relief is Provided?

Deadlines for the following returns and payments are postponed to May 1, 2025:

• 2023 business and individual returns with a valid extension.
• 2024 business and individual timely filed returns, tax payments, and Q3/Q4 estimated payments.
• Quarterly payroll and excise tax returns for Q4 2024, Q1 2025 and Q2 2025.

Penalties for underpayments during this period are also suspended. Interest on old balances will continue to accrue.

Additional Relief

• Qualified disaster relief payments: Payments received from government agencies for living expenses are generally non-taxable. Payments for replacing or repairing lost or destroyed property are generally excludable, too, but they may reduce casualty losses.
• Hardship withdrawals: Taxpayers may be eligible to make hardship withdrawals from certain retirement plans without the 10% early distribution tax.
• Casualty losses: Taxpayers who suffered losses from the disaster may be eligible to claim disaster casualty losses.

Claiming Casualty Losses

Taxpayers in a federally declared disaster area have the unique opportunity to elect to claim the loss for either the year the loss occurred or for the prior year. You cannot split losses between years or choose different years for different properties. Casualty losses may be taken on real estate, business property, and personal property (including vehicles, appliances and furniture). These losses are typically reported on Schedule A, offsetting regular income and wages.

Calculating Casualty Losses

The loss on personal property is determined as:

• The lesser of the cost basis of the property or its decline in fair market value,
• Less insurance reimbursements,
• Less $500 per disaster,
• Less 10% of AGI.

Business and investment property are not subject to the limitations in points 3) and 4).

The IRS acknowledges the difficulty in valuing property after a natural disaster and encourages taxpayers to make reasonable estimations in good faith and keep good records. You can estimate the decline in FMV by:

• Using the actual costs incurred to repair and/or restore the property to its pre-disaster state, or
• Obtaining an appraisal of the property’s pre- and post-disaster value, or
• Using another acceptable method provided in Notice 2018-08.

If the insurance proceeds received exceed the cost basis in the property, you may face recognizing a casualty gain. You may be able to mitigate some of these gains.

Special Rules for Primary Home

Normally, when selling your personal home you can exclude up to $250,000 ($500,000 for married) of gain from the sale. If your home was destroyed in the disaster, you can apply this exclusion against gains from insurance proceeds. Additionally, if you sell the vacant land where the home stood within two years, any remaining gain exclusion may be applied to the gain from the land sale. You can also defer any remaining gain if you reinvest the proceeds in similar property within four years.

For previous disasters, such as Hurricanes Harvey and Irma, Congress has waived the $500/disaster and 10% of AGI reductions. While no such action has yet been taken, it may be considered during the upcoming lame duck session.

Get Help Navigating These Complex Rules

The IRS provides relief for a variety of disasters. For a full list of relief opportunities beyond Hurricanes Debby, Helene, and/or Milton, visit the IRS disaster relief website.

The professionals at Snyder Cohn are here to help you navigate these complex rules and strategize to ensure you’re getting the full benefit of the relief. Reach out to us today to start the conversation!

 

By: Zane Sanchez