Here are some of the most frequently asked questions about the available tax deductions for Hurricane Ida.
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Can I deduct the costs of evacuating for a hurricane?
Individuals may not deduct hurricane evacuation costs. Businesses covering expenses for their employees may be able to deduct the expense as compensation. Evacuation costs may also count as a general business expense if they were necessary for business operations such as flying an employee to another office so they could continue working.
Can I deduct the income I lost due to a hurricane?
You cannot take a deduction for lost income. However, you are also not paying taxes on income you never received.
If your employer didn’t adjust your withholding due to your reduced income, you can either claim a refund when you file your taxes or reduce your withholding for the remainder of the year.
Can I deduct the cost of preparing my home/business for a hurricane?
There is no special deduction for disaster preparation costs. Homeowners should treat these expenses as regular household expenses.
Business owners should treat most preparations as ordinary business expenses. For permanent improvements, such as installing storm shutters, you may need to capitalize and depreciate the expense rather than claiming it in the year it happened.
Can I deduct the cost of repairs after a hurricane?
You may be able to deduct the cost of repairs under the casualty loss rules.
To qualify, you must be in a federally-declared disaster area. If you live outside of a disaster area, you can’t claim a deduction. For hurricanes, most coastal areas will be covered, but the disaster area may not cover all inland areas with flooding, fallen trees, or other damage. (This is a change for 2018 and beyond. If you still need to file or amend tax returns for 2017 or prior, this rule does not apply.)
To calculate your deduction, add up your losses and
- Subtract $100. This is a floor amount in the tax code that basically works like an insurance deductible.
- Subtract 10% of your AGI. The deduction only covers amounts above 10% of your AGI.
- Subtract any insurance coverage. You must use insurance first. You can’t choose to not file a claim and claim a deduction for your full loss.
- $50,000 in damage and $50,000 AGI.
- – $100 = $49,900.
- – $5,000 (10% of AGI) = $44,900
- – $40,000 in assumed insurance coverage = $4,900
- Potential tax deduction of $4,900.
The disaster area, $100 minimum, and AGI limitations don’t apply to business casualty losses. You can generally deduct the full loss in value of assets damaged or destroyed by a hurricane or other disaster. The value is based on the adjusted basis after any depreciation or expensing rather than the original purchase price.
If you have insurance coverage, you can only deduct the amount not covered by insurance. If an asset is totaled, you must subtract any salvage value you received from your deduction.
Note: These calculations can get complicated, so you generally want to work with an accountant to get them right.
What about rental properties?
If you own a rental property, you can generally deduct those hurricane expenses that a business would. Your deduction may be reduced or eliminated depending on the amount of time you use the property for personal purposes, whether you’re claiming a net profit or loss, and your level of active involvement in the management of the property.
Can I deduct the cost of property destroyed by a hurricane?
See above on repairs. The same rules and limitations apply to destroyed property.
What about trees and landscaping damaged by a hurricane?
If you have trees blown over or landscaping destroyed, you may be able to deduct the cost to remove the debris and replace them. The trick here is that a casualty loss deduction is for the loss in value to your property not for the cost of cleanup or new landscaping. But you can use those costs to approximate the decrease in property value caused by the storm.
You’d need to show:
- The condition of your property before the storm. If you don’t have your own photos, an online satellite map or street view might be enough to show your trees.
- You restored your property to its original condition and aren’t including costs to improve your landscaping. If you do want to make improvements, try to do the work in stages and get separate receipts so you can split restoration from improvements.
- Your costs were necessary and reasonable to restore your property.
If you didn’t want to restore your property to its original condition, you may still be able to take a deduction. In that case, you’d likely need to hire an appraiser to establish the decline in its fair market value.
How do I value a tree damaged or destroyed by a hurricane?
Older trees that have grown for decades or centuries can have five or six-figure valuations. This because they generally add character to your home and surrounding neighborhood and are virtually irreplaceable.
To avoid being lowballed with only removal costs or the cost of a new, much younger tree, seek the help of a qualified arborist. Ideally, you’ll have this valuation done before the storm — perhaps every few years. If not, an arborist can examine the fallen tree as well as any past photos to determine an appropriate valuation.
Does the IRS give taxpayers impacted by a hurricane extra time?
Yes, the IRS typically extends deadlines for filing and payment in federally-declared disaster areas. The length of the extension will depend on the severity of the impact and may vary by location even for the same hurricane.
The IRS has announced the following personal, partnership, and/or corporate tax extensions:
Please note that this generally applies to current-year taxes. If you have a tax debt from a previous year, the IRS takes the position that you should have already paid before the storm.
Can I deduct donations to hurricane relief organizations?
Donations to hurricane relief efforts may deductible under the normal charitable donation guidelines if made to a qualifying organization.
What should I do if I’m not sure if I can take certain tax deductions for Hurricane Ida?
As always, keep all receipts, estimates, contracts, and any other documentation showing the amount and purpose of every transaction. It’s much better to have documentation of an expense that you can’t deduct than to find out you lost tax deductions because you didn’t save the receipts. Your tax professional can help you decide what you’re able to claim when it’s time to file your return.