Were you affected financially by Harvey, Irma, or Maria last year? If one of these hurricanes cost you, you may have a deductible casualty loss for 2017, or possibly even for 2016. While the rules are complex, many people are not aware that The Disaster Tax Relief and Airport and Airway Extension Act of 2017 loosened a lot of rules for these three storms. It might be worth getting your records together and seeing a CPA. Check the following examples:
Do you think your loss won’t be deductible because it doesn’t exceed 10% of your income? For Harvey, Irma, and Maria, that requirement has been suspended.
Do you think your loss won’t be deductible because you don’t itemize? No problem. Your loss gets added to your standard deduction.
Do you think your loss won’t be deductible because you are subject to the Alternative Minimum Tax (AMT)? AMT filers in Harvey, Irma, Maria areas are exempted.
Did you lose your records and think you don’t have enough evidence of your property’s value? The IRS may consider values from old catalogs, thrift stores, classified ads, and other sources of secondary market information to support the value of your lost or damaged items. Consider that the original seller or seller’s agent might have records, too. Lots of people lose their records in a storm – accountants know the acceptable substitutes.
Did you use up your emergency fund for this emergency? If you are under 59 1/2, you can take a withdrawal from a retirement plan without penalty. You’ll still have to pay the tax on the withdrawal, but you can stretch it out over 3 years.
No clue how much to withdraw? Nothing says the withdrawal has to match the amount of your loss. (But you must have a loss to begin with.) The maximum is $100,000 per person. (Can you say, “Roth conversion?”) If you don’t use it all, or you’re able to pay it back to yourself later, it gets treated as a rollover, so it doesn’t count against current-year contributions.
Was your income bigger in 2016 and you really could have used the loss then, instead of this year? You can amend your 2016 return and take the loss for that year instead of 2017.
Is it too overwhelming to come up with an inventory of everything you lost and what you need to know about it? The IRS has a room-by-room worksheet already done for you here: https://www.irs.gov/pub/
Some basics to find out before you see the accountant:
Was the site of your loss in a federally declared disaster area? If you’re not sure, check http://www.fema.gov
Did your loss exceed $500? If not, it’s probably not deductible.
Did you receive, or do you expect to receive, any FEMA or insurance reimbursement? Remember to net that out.
With the leeway given for 2017’s massive storms, it’s very possible your loss could qualify. Don’t assume that complex rules are designed to rule you out.