- What are some options for natural disaster tax relief?
- Does the Mortgage Forgiveness Debt Relief Act effect you?
Tax and Financial Relief Options Natural Disasters
Natural disasters and emergencies affect many families and businesses every year. With the current weather-related issues in the Midwest, we want to take a moment to inform you of the options that victims have that can help them financially.
Disaster Tax Relief
Victims of the latest floods may qualify for tax relief. A variety of tax relief options are available such as: casualty loss deductions, filing extensions, and tax-free assistance.
- Special Casualty Loss Deduction on Federal Tax Return
Special casualty loss rules apply in a federally declared disaster area. You can amend last year's Federal tax return to report current losses. (In cases of refunds, this method can deliver a refund generally within 45 days.) The other option is to report the losses on your current tax year Federal return. Be aware that you cannot deduct losses that are covered by insurance or emergency aid assistance. Use IRS Form 4684 to itemize these losses on a tax return.
In general, losses are deductible if they total more than $100 and more than 10 percent of your adjusted gross income. Also, keep documentation to prove that a loss took place due to a disaster. Include the dollar amount of loss, documentation on who owns or is liable for the property, and appraisals or photographs of loss. Getting an estimate for damages from an appraiser, county tax assessor, or another reliable resource is a good idea. For more information about how to report a casualty deduction on a tax return, visit the IRS web site at www.irs.gov .
Extension to file a return
Disaster area taxpayers may be eligible to postpone the filing of returns, paying taxes, and performing other time-sensitive acts. Due dates vary, depending on location, and details are posted on the "Tax Relief in Disaster Situations" page on www.irs.gov website. Taxpayers not in the covered disaster area, but whose books, records, or tax professionals' offices are in the covered disaster area, may be entitled to relief.
Disaster victims in a presidentially declared disaster area generally do not have to pay taxes on assistance payments they receive. This exclusion from income applies to expenses compensated by assistance programs (such as Red Cross or FEMA) that are not otherwise reimbursed by insurance or other sources.
Other Financial Relief
When disaster strikes, there are many agencies and non-profit organizations that are available to assist families and businesses. Many of these benefits are tax-free. The following is a list of some key agencies and a description of their functions:
- Federal Emergency Management Agency (FEMA)
FEMA is a federal disaster aid program that provides aid to citizens affected by major disasters. They provide disaster assistance in the form of money or direct assistance. It is meant to help you with critical expenses that cannot be covered in other ways such as insurance. For more information on FEMA, visit their website at www.fema.gov, or call them at 1-800-621-FEMA (3362).
American Red Cross
The Red Cross focuses on meeting people's immediate emergency disaster-related needs. They provide temporary shelter, food, and health and mental health services to assist individuals and families affected by a disaster. They also handle inquiries from concerned family members outside the disaster area, provide blood and blood-related products, and perform many other services to help people resume their normal daily activities independently. For more information, visit their website at www.redcross.org .
Small Business Administration (SBA)
SBA is responsible for providing affordable, timely, and accessible financial assistance to homeowners, renters, and businesses of all sizes located in a declared disaster area. Financial assistance is available in the form of low-interest, long-term loans for losses that are not fully covered by insurance or other resources. For more information on SBA, visit their website at www.SBA.gov, or call them at 1-800-659-2955.
Foreclosures No Longer Followed by a Big Tax Bite
Signed into law in December 2007, The Mortgage Forgiveness Debt Relief Act of 2007 protects American families from higher taxes when they refinance their homes.
Under the previous tax law, if the value of your house declined and your bank or lender forgave a portion of your mortgage, the IRS could treat the amount forgiven as money that could be taxed.
The new law creates a temporary (through 2012) change to the tax code to eliminate any taxes home owners may face if a lender forgives a portion of outstanding mortgage debt (whether through a deficiency in foreclosure, or a loan modification/refinance). It increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes. Learn more at http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html