In 2011 the federal government declared a record-breaking 99 natural disasters, including floods, hurricanes, tornadoes, earthquakes, and heat waves, surpassing the previous high-water mark of 81, set in 2010. To help taxpayers and businesses recover financially from the impact of a natural disaster, the IRS provides a number of tax law provisions to those affected by these and other disasters.
If you were the victim of a natural disaster in 2011, you may be eligible for relief dollars when filing this year's tax return. And if you were a victim of the recent tornadoes in the Midwest or a separate disaster this calendar year, you may be eligible for a special tax treatment that allows you to claim your disaster on your 2011 tax return. If you aren't able to claim your 2012 disaster now, there are a number of things you can begin doing in order to prepare for next year's tax deadline.
For everyone who has been affected by a natural disaster, here are five tips for tax time:
- Know your deadlines. The IRS may postpone certain tax deadlines for taxpayers who are affected by a federally declared disaster. These extensions can push standard deadlines as far back as one year and may include filing income, excise, and employment tax returns, paying taxes associated with those returns, and making contributions to a traditional IRA or Roth IRA. The IRS typically publishes announcements about postponed tax deadlines online at www.irs.gov.
- Document your loss. Take photographs or videos of the damage to your property, as well as any repairs. It's also important to keep any and all receipts for repairs or clean-up work. While these are not deductible losses, repairs or clean-up expenses may help establish a decline in the fair market value of your property -- again, as long as the expenses are incurred to restore the property to its original condition. If the disaster that affected you is not widely known, be sure to save any police reports or newspaper articles to document the event.
- Know what's not covered. Several costs related to a disaster are not considered deductible losses. These include the cost of repairing damaged property, restoring landscaping to its original condition, and cleaning up after a casualty. However, if these expenses meet certain conditions such as an expense incurred to restore your property to its original condition, you may be able to use these costs as a measure of the decrease in fair market value of your property. Damage from routine wear and tear, such as termites, is also not a deductible loss.
- File a timely insurance claim. If your property is covered by insurance, you should file a timely insurance claim for reimbursement of the loss. Not filing an insurance claim may limit your eligible casualty or theft loss to the amount that is normally not covered by your insurance, such as your insurance deductible amount.
- Be aware of federally declared disasters. Additional tax relief may be available if an area is declared a federal disaster area. A full list of 2011's 99 federally declared disasters is available on the Federal Emergency Management Agency website. If you have been affected by a federally declared disaster, you must choose how you will claim the loss -- either as part of your itemized deductions for the year in which it occurred or by amending your prior-year tax return and claiming your deductions in the previous tax year. If you have a loss in a federally declared disaster area since Jan. 1, 2012, you may claim the loss on your 2011 tax return or wait until you file your 2012 tax return next year. If you have already filed your 2011 tax return, you may amend the return to claim the loss now.