Natural disasters damage not only your physical belongings but your finances too. There’s little that can help or replace what you’ve lost, but natural disasters tax deductions can put a little money back in your pocket.
Who is Eligible for Natural Disasters Tax Deductions?
If your home is located in a disaster area recognized by the federal government, you’re eligible for natural disasters tax deductions. The deductions apply to both individuals and businesses of all sizes.
Retirement Account Tax Relief
Taxpayers affected by a natural disaster may access their retirement funds early, whether in a 401K or IRA.
You may either withdraw the funds and not repay them or withdraw them and repay them within 3 years. You may borrow or withdraw up to $100,000, which is $50,000 more than the usual limit.
Taxpayers also don’t have to pay the normal 10% tax penalty for early withdrawal.
If you itemize your deductions, which means you have more than $12,400 in standard deductions or $24,800 for couples filing jointly you may claim casualty deductions of:
The amount of the damages minus $100 minus 10% of your adjusted gross income. Anything left after this calculation may be deducted on your tax returns, however, you may only claim the amount your insurance company didn’t claim.
For example, if your calculation had a total of $15,000, but your part of the damages only cost you $5,000 after insurance, you may only claim $5,000.
You have two options when claiming the natural disasters tax deductions:
- Take the deduction in the year that the disaster occurred
- Amend your previous year’s tax return and take it for that year, and apply for a faster refund
What to do if You’re Involved in a Natural Disaster
If your area was declared a natural disaster by the federal government, keep copies of all receipts, records, and insurance claims. The IRS requires you to prove that you incurred a major loss as a result of the natural disaster.
If you take the itemized deduction for casualty loss, you must provide adequate proof of the loss, the monies you paid, and any other proof the IRS wants. Make sure you keep all records for a few years after the disaster and protect them from any future natural disasters if you live in an area prone to natural disasters.
The IRS offers assistance to those most affected by natural disasters with the natural disasters tax deductions. Don’t assume you automatically qualify, though. Talk to a tax professional and/or the IRS. Make sure your qualifications meet the requirements so you fairly claim the deductions and get the help you need.