2019 FEDERALLY DECLARED DISASTER AREAS (SO FAR)

As promised, here are the federally declared disaster areas that qualify for tax relief in 2019 (so far):

Alabama Severe storms, tornadoes, and straight-line winds that took place on March 3, 2019 for individuals who reside or have a business in Lee County.

Arkansas Severe storms and flooding that took place on May 21, 2019 for individuals who reside or have a business in Arkansas, Conway, Crawford, Desha, Faulkner, Jefferson, Lincoln, Logan, Perry, Pope, Pulaski, Sebastian, and Yell counties.

Iowa Severe storms and flooding that took place on March 12, 2019 for individuals who reside or have a business in Fremont, Harrison, Louisa, Mills, Monona, Pottawattamie, Scott, Shelby, and Woodbury counties.

Missouri Severe storms, tornadoes, and flooding that took place on April 29, 2019 for individuals who reside or have a business in Andrew, Atchison, Boone, Buchanan, Carroll, Chariton, Cole, Greene, Holt, Jackson, Jasper, Lafayette, Lincoln, Livingston, Miller, Osage, Pike, Platte, Pulaski, and St. Charles counties.

Nebraska Severe winter storm, straight-line  winds, and  flooding that took place on March 9, 2019 for individuals who reside or have a business in Antelope, Boone, Boyd, Buffalo, Butler, Burt, Cass, Colfax, Cuming, Custer, Dodge, Douglas, Hall, Holt, Howard, Knox, Madison, Nance, Nemaha, Pierce, Platte, Richardson, Saline, Sarpy, Saunders, Stanton, Thurston, and Washington counties, and the Santee Sioux Nation.

Ohio Severe storms, straight -line winds, tornadoes, flooding, and landslides that took place on May 27, 2019 for individuals who reside or have a business in Auglaize, Darke, Greene, Hocking, Mercer, Miami, Montgomery, Muskingum, Perry, and Pickaway counties.

Oklahoma Severe storms , tornadoes, straight-line winds, and flooding that took place on May 7, 2019 for individuals who reside or have a business in Alfalfa, Canadian, Creek, Cherokee, Craig, Delaware, Garfield, Kay, Kingfisher, Le Flore, Logan , Mayes, Muskogee, Noble, Nowata, Okmulgee, Osage, Ottawa, Payne, Pawnee, Pottawatomie, Rogers, Sequoyah, Tulsa, Wagoner, Washington and Woods counties.

South Dakota Severe storms, tornadoes, straight-line winds, and flooding that began on March 13, 2019 for individuals and households who reside or have a business in Bennett, Bon Homme, Charles Mix, Dewey, Hutchinson, Jackson, Mellette, Minnehaha, Oglala Lakota, Todd, Turner, Yankton, Ziebach counties, the Cheyenne River Sioux Reservation, the Pine Ridge Reservation, and the Rosebud Reservation.

And again, for for updates on the areas that qualify click here.

TTFN

DEDUCTING CASUALTY LOSSES

A brief review of the rules for deducting casualty losses.

 

You may be able to deduct a loss from a casualty or theft on Schedule A.

 

A casualty is damage, destruction or loss of property that results from an identifiable sudden, unexpected or unusual event – such as a car accident, earthquake, fire, flood, hurricane, storm, tornado, and the like.

 

Your loss is the lessor of –

 

• the adjusted basis of the property before the casualty or theft, or

 

• the decrease in fair market value of the property as a result of the casualty or theft.

 

In the case of a theft there is generally no remaining fair market value, so your loss would be the adjusted basis of the property stolen.

 

When calculating the deductible loss you cannot use the market value of the property damaged - you must use the adjusted cost basis.  The property may have been worth $500,000 before the casualty, but if the cost basis is only $200,000 your loss is limited to $200,000.

 

You first reduce the loss by any insurance or other reimbursement you receive, or expect to receive. 

 

If your reimbursement is more than your allowable loss you may have taxable income.  If you receive an unexpected reimbursement in a subsequent year, or if a reimbursement received after your return claiming the loss has been filed is not what you had expected when calculating the allowable deduction, you may need to make an adjustment on a subsequent Form 1040.

 

Next you reduce the resulting net amount by $100.00.  This $100.00 reduction is per incident.  If there is only one casualty or theft during the year the reduction is $100.00.  If there are two separate incidents, one casualty and one theft, the total reduction is $200.00.

 

The total amount of all net casualty and theft losses for the year, after subtracting actual or anticipated reimbursements and the $100.00 per incident, is then reduced by 10% of your Adjusted Gross Income (AGI).  The remaining amount is what can be deducted.

 

If the total amount of net casualty and theft losses for 2017 is $9,500.00 and your AGI is $105,000.00 you get no deduction ($9,500 - $10,500 = $0).  

 

If you have a deductible casualty loss in a disaster area, such as Hurricane Harvey, you have the option of claiming the loss on the return for the year in which the casualty occurs – your 2017 Form 1040 - or the previous year.  This means that you do not have to wait until next year to get the refund generated by the casualty loss – you can amend your 2016 Form 1040 and get a refund now, when you need the money to replace and repair.

 

TTFN

 

 

 

 

CASUALTY AND THEFT LOSSES

A very close friend was a victim of the recent earthquake in Italy.  He was actually visiting Italy and sleeping in his house there when the earthquake occurred and the building was destroyed.  Luckily he was not injured.

 

I just emailed him to explain what he will need to claim a casualty loss on his 2016 tax return.  While it is on my mind I thought I would post the information here.

 

You may be able to deduct a loss from a casualty or theft on Schedule A.

 

A casualty is damage, destruction or loss of property that results from an identifiable sudden, unexpected or unusual event – such as a car accident, earthquake, fire, flood, hurricane, storm, tornado, and the like.

 

The loss you can deduct is NOT the “replacement value” of the property or item.  Your loss is the lessor of –

 

•  the adjusted basis of the property before the casualty or theft, or

 

•  the decrease in fair market value of the property as a result of the casualty or theft.

 

In the case of a theft there is generally no remaining fair market value, so your loss would be the adjusted basis of the property stolen.

 

You first reduce the loss by any insurance or other reimbursement you receive, or expect to receive. 

 

If your reimbursement is more than your allowable loss you may have taxable income.  If you receive an unexpected reimbursement in a subsequent year, or if a reimbursement received after your return claiming the loss has been filed is not what you had expected when calculating the allowable deduction, you may need to make an adjustment on a subsequent Form 1040.

 

Next you reduce the resulting net amount by $100.00.  This $100.00 reduction is per incident.  If there is only one casualty or theft during the year the reduction is $100.00.  If there are two separate incidents, one casualty and one theft, the total reduction is $200.00.

 

The total amount of all net casualty and theft losses for the year, after subtracting actual or anticipated reimbursements and the $100.00 per incident, is then reduced by 10% of your Adjusted Gross Income (AGI).  The remaining amount is what can be deducted.

 

If the total amount of net casualty and theft losses for 2016 is $9,500.00 and your AGI is $105,000.00 you get no deduction ($9,500 - $10,500 = $0).  

 

If you have a deductible casualty loss in a disaster area, such as “Superstorm” Sandy of a few years back, you have the option of claiming the loss on the return for the year in which the casualty occurs – your 2016 Form 1040 - or the previous year.  This means that you do not have to wait until next year to get the refund generated by the casualty loss – you can amend your 2015 Form 1040 and get a refund now, when you need the money to replace and repair.

 

Special rules also apply if you lost money in a “Madoff-like” Ponzi scheme. 

 

You cannot deduct losses that result from –

 

•  Accidental damage by a pet,

•  An accident caused by willful action or negligence or a fire caused by arson,

•  Disease or insect damage to trees, plants or shrubs,

•  Losing property, or

•  Progressive deterioration.

 

TTFN

 

 

 

 

 

 

 

DEDUCTING SANDY-RELATED VOLUNTEER EXPENSES

Many individuals, instead of or in addition to making cash donations to relief organizations, are offering hands-on assistance to victims of Sandy.

If you are able to itemize on Schedule A you may be able to claim a tax deduction for any “out of pocket” expenses connected with your Sandy-related volunteer efforts.

It is important to note that, to be deductible, you must be a volunteer with an IRS-qualified organization, such as the Red Cross.

Here is the word on deducting your expenses from the “Out-of-Pocket Expenses in Giving Services” section of IRS Publication 17 (Your Federal Income Tax), with some comments from me (any highlights are mine) -

“Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

• Unreimbursed,

• Directly connected with the services,

• Expenses you had only because of the services you gave, and

• Not personal, living, or family expenses

If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. {Using the standard mileage allowance is probably the better choice.  FYI, this rate is set by Congress and not the IRS and has not changed in a dog’s age.  It is possible that Congress may pass legislation to increase this rate for Sandy-related travel only, as they have done in the past with high-profile natural disasters – rdf}

You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate.

You must keep reliable written records of your car expenses.  {This is very important.  Keep a mileage log in, for example, your pocket date book of all the miles driven for Sandy-related relief efforts.  Actuually you should keep good records of ALL of your relief-related expenses. - rdf}

Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure {However, on this issue the IRS also says – “The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip.” – rdf}, recreation, or vacation in the travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses.

Deductible travel expenses.   These include:

• Air, rail, and bus transportation,

• Out-of-pocket expenses for your car {see above – rdf},

• Taxi fares or other costs of transportation between the airport or station and your hotel,

• Lodging costs, and

• The cost of meals. {Unlike business meals you can deduct 100% of the cost of meals – you are not limited to 50%. - rdf}”

As I mentioned above, Congress may pass legislation to add or liberalize deductions for Sandy-related travel, as they have done in the past with high-profile natural disasters.  If they do I will let you know here at TWTP.

If you donate canned or other food items to a charity for Sandy victims be sure to keep your supermarket receipt and circle the items donated.  And if you donate used clothes or household items be sure to make a detailed listing of what you are giving.

Remember, you must give these items to a recognized charitable organization.  If you put together a care package and give or send it directly to a specific needy individual or family you cannot claim a deduction on Schedule A.

TTFN

DEDUCTING SANDY

Hurricane Sandy was the most devastating and expensive natural disaster to hit the East Coast. 

It has been estimated that Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business.  At least 56 people in the U.S. were killed.  More than 4 million people were without power for more than a week. 

While I was lucky to escape the effects of Sandy, just about every one of my New Jersey friends and clients, no matter where they live in the Garden State, was, or still is effected in some way.

If you are a victim of Sandy, you may be able to deduct losses as an itemized deduction on your Schedule A.  Worth repeating – you must be able to itemize to claim any tax deduction for your losses.

Casualty losses are reported on Form 4684 (PDF), Casualties and Thefts, before being transferred to Schedule A.

A casualty is damage, destruction or loss of property that results from an identifiable sudden, unexpected or unusual event – such as a car accident, earthquake, fire, flood, hurricane, storm, tornado, and the like.

Your loss is the lessor of –

•  the adjusted basis of the property before the casualty or theft, or

•  the decrease in fair market value of the property as a result of the casualty or theft.

You cannot deduct the “replacement cost” of an item totally destroyed in a casualty.  If you lost an item that originally cost you $500, but will now cost $700 to replace, your deduction for that item is NOT $700 – it is $500.  The “adjusted basis” of a personal item is generally its original cost.

You must first reduce the loss by any insurance or other reimbursement you receive, or expect to receive. 

If your reimbursement is more than your allowable loss you may have taxable income.  If you receive an unexpected reimbursement in a subsequent year, or if a reimbursement received after your return claiming the loss has been filed is not what you had expected when calculating the allowable deduction, you may need to make an adjustment on a subsequent Form 1040.

Next you reduce the resulting net amount by $100.  This $100 reduction is per incident.  If there is only one casualty or theft during the year the reduction is $100.  If there are two separate incidents, one casualty and one theft, the total reduction is $200.

The total amount of all net casualty and theft losses for the year, after subtracting actual or anticipated reimbursements and the $100 per incident, is then reduced by 10% of your Adjusted Gross Income (AGI).  The remaining amount is what can be deducted.

If the total amount of net casualty and theft losses for 2012 is $9,500 and your AGI is $105,000, you get no deduction ($9,500 - $10,500 = $0).  

If you have a deductible casualty loss in a disaster area, as would be the case with Sandy, you have the option of claiming the loss on the return for the year in which the casualty occurs – your 2012 Form 1040 - or the previous year.  This means that you do not have to wait until next year to get the refund generated by the casualty loss – you can amend your 2011 Form 1040 and get a refund now, when you need the money to replace and repair.

In the past the idiots in Congress have passed special tax breaks related to victims, and those who provide help to victims, of high-profile natural disasters.  While the idiots in our current Congress could not act properly and timely on the expired and expiring tax breaks, they may enact some Sandy relief before year-end, which could alter the rules discussed above. 

Perhaps they will address the “extenders” in the Sandy relief legislation?

On the income side, BUSINESS INSIDER tells us that “There Are Some Hidden Tax Benefits for Hurricane Sandy Victims” –

·   “Storm-related workers compensation: Workers who receive storm-related compensation from their employers won’t face a tax liability. The payments include a number of expenses such as funeral costs.

·   Payments from charities and state programs: Payments from charities, state programs and the Federal Emergency Management Agency (FEMA) will also be tax-exempt, according to the IRS.

·   401(k) loans: Taxpayers will be allowed to borrow funds from their 401(k) retirement savings in to make storm repairs, or under other specific circumstances, without the usual penalties.”

Of course if you were a victim of Sandy you should contact your tax professional for more information and advice.

TTFN