By Dee Johnson
Many of you are wondering how the flood will affect your taxes. If your loss was on a personal residence, you may be entitled to take the loss on your personal return, 1040. It is called a casualty loss, taken on the Schedule A form of the 1040; Publication 547 (2013),
Casualties, Disasters, and Thefts. Because Lyons and the surrounding areas was declared a Federal Disaster Area, the
taxpayer is allowed to amend the 2012 (year preceding the event) and capture the loss against the taxable income for that year. You may choose not to apply it to 2012, but rather just start with 2013. This is a choice you as a tax payer have to determine. You should check with tax professional to see what is the best option for your personal situation.
If you choose this option, you must figure the value of your property before the flood and then again after the flood. You must take into account the insurance reimbursements, but not the FEMA payments (this is addressed below). You will need to value just the house and/or structures on the property and the personal belongings including furniture, jewelry, clothing, vehicles, etc. You may have to hire an appraiser to determine the after flood value.
Your loss will be the difference between the pre-flood value and the post-flood value. IRS Publication 584 has worksheets and explanation of how to get to the loss. We also have packets in the office of Double D Accounting for your convenience.
Many have asked if there FEMA assistance payments are taxable, and the answer is no. Straight from the IRS, Federal disaster relief grants. Do not include post-disaster relief grants received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses, or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. If the casualty loss was specifically reimbursed by the grant, and you received the grant after the year in which you deducted the casualty loss, see Reimbursement Received After Deducting Loss, earlier. However, unemployment assistance payments under the Act are taxable unemployment compensation.
Qualified Disaster Relief Payments:
Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. These payments are not 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 you receive (regardless of the source) for the following expenses:
Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster.
Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. (A personal residence can be a rented residence or one you own.)
Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster.
Qualified disaster relief payments also include 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:
Payments for expenses otherwise paid for by insurance or other reimbursements, or
Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.
Qualified Disaster Mitigation Payments:
Qualified disaster mitigation payments made under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. These are payments you, as a property owner, receive to reduce the risk of future damage to your property. You cannot increase your basis in the property, or take a deduction, or credit, for expenditures made with respect to those payments.
Sale Of Property Under Hazard Mitigation Program:
Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. You report the gain, or deduct the loss on your tax return for the year you realize it. You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. However, if you sell or otherwise transfer property to the Federal Government, a state, or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. See Postponement of Gain, earlier, for the rules that apply.
Double D Accounting will offer a thirty minute free consultation for any flood victim, present client or not, to help you figure out your direction. We also will have worksheets on how to value your possessions. Stop by and pick one up at 436 High Street from the hours of 9 a.m. to 5 p.m., Monday through Friday.