With so many recent natural disasters we wanted to share some important tax and retirement information to support anyone affected by the life-changing damages and losses that have recently occurred.
NOTE: The following content is sourced from the Kiplinger Tax Letter.
DISASTERS
Were you a victim of recent Hurricanes? Tax laws can help victims of Helene, Milton, and other federally declared disasters. For instance:
Individuals can deduct personal losses that aren’t reimbursed by insurance.
Your loss is equal to the smaller of the damaged property’s adjusted tax basis or decline in value, less any insurance proceeds you received or expect to receive.
Only itemizers can claim a deduction for damage to nonbusiness property.
Here Are The Details
Use Form 4684 to figure your losses and transfer the amount to Schedule A, line 15.
And two offsets apply. The loss that you calculate is first reduced by $100. The balance is deductible only to the extent it exceeds 10% of adjusted gross income.
The rules for deducting casualty losses on businesses are more liberal. A business casualty loss needn’t be attributable to a federally declared disaster area, the $100 and 10%-of-AGI offsets don’t apply, and nonitemizers can write off losses.
2024 disaster losses can be claimed on your 2023 or 2024 federal return. That’s because individuals can opt to take the loss on the return for the disaster year or the return for the year preceding the disaster.
If you’ve already filed your 2023 1040, you can amend it to take the write-off by filing Form 1040-X by Oct. 15, 2025.
Proposed Disaster Relief Tax Bill
A stand-alone disaster relief tax bill passed the House in May, but has stalled in the upper chamber. The wide devastation of Helene and effects of Milton might push senators to act sooner than later.
There is one provision in the bill that would let people take personal disaster losses even if they don’t itemize on Schedule A. The net loss would be treated as an additional standard deduction. This would apply to federally declared disasters in 2021 and subsequent years.
Tax Returns
If you lost prior-year returns in a disaster, you can use IRS’s Get Transcript tool on its website to view and print a summary of your tax information, mail Form 4506-T or call IRS’s automated line at 800-908-9946. For an actual return, mail Form 4506. IRS also has a phone line for disaster-related queries: 866-562-5227.
Helene victims have until May 1, 2025, to file 2023 federal income tax returns,
assuming they previously got proper filing extensions. Estimated tax payments due
on Jan. 15, 2025, and April 15, 2025, payroll tax filings and excise tax returns are also extended. Expect IRS to soon grant similar relief to victims of Milton.
RETIREMENT
There are three retirement-related easings for disaster victims:
The 10% penalty on pre-age-591⁄2 payouts from IRAs and plans is waived on up to $22,000 per disaster. The distribution must be taken within 179 days of the date the disaster is declared. Tax on these qualified disaster distributions can be paid over three years unless the individual opts to pay it all at once. Amounts recontributed within the three-year period are treated as tax-free rollovers.
You can borrow more from your 401(k) or other workplace plans... up to the lesser of $100,000 or 100% of the account balance. Repayment terms can be extended by one year if the plan otherwise allows for this disaster relief.
Predisaster payouts to buy a home in a disaster area can be recontributed to the IRA or plan in a nontaxable rollover, provided you didn’t end up buying the home.
コメント