3 Ways Tax Laws May Provide Relief for Natural Disaster Victims
When natural disasters occur, many people are left with damaged or destroyed homes and businesses. Some are able to rebuild, while others may lose everything they own.
If you are affected by a disaster that qualifies for federal assistance, there are provisions in our tax laws that help provide relief:
Extended tax deadline and interest abatement. The IRS may postpone deadlines for filing tax returns as well as payment due dates for up to 120 days in a federally declared disaster area. Your balance will not accrue interest during this extension period.
Faster refund. Taxpayers who suffer losses in natural disaster area have the choice to deduct the casualty loss for the year the loss occurs, or, it can be claimed on the prior year's tax return. Amending your prior year's return may give you a refund of that much-needed cash much sooner than waiting until the following year to deduct the loss.
Tax-free gain. If the insurance payments you receive exceed the tax basis of your property, you will end up with a casualty gain. Casualty gains in federally declared disaster areas receive special tax treatment.
For example: Individuals may qualify for a gain exclusion of up to $250,000 ($500,000 for married couples) on their principal residence. This is due to the destruction of the residence being treated as a sale for tax purposes.
If you have suffered a loss during the recent California wildfires or other federally declared natural disasters, please give us a call at 805-496-2828 to discuss the best course of action for your tax situation.