Delayed Tax Deadline Nears for Flooding Victims in Houston
Relief available on tax return for taxpayers with unreimbursed losses
When Houston flooded so close to the April tax deadline, affected taxpayers who had waited to file their 2015 returns until the deadline got a new one: September 1, 2016. But it isn’t just those who were waiting until the last minute to file who can find tax relief to help their recovery from the flooding. Taxpayers with unreimbursed losses may get a substantial tax benefit by claiming their losses on their 2015 or 2016 return.
“Taxpayers need to know when there is monetary relief in the form of their tax return,” said Kathy Pickering, executive director of The Tax Institute at H&R Block. “We have tax professionals available year-round to help our neighbors get back on track wherever disaster strikes and whenever their tax deadline falls.”
Taxpayers in the following Texas counties may be eligible for tax relief:
- Fort Bend
- San Jacinto
Casualty loss deductions can provide substantial tax relief
Many homeowner’s and renter’s insurance policies have restrictions, including some that don’t cover flooding. Claiming unreimbursed expenses as casualty losses for damaged or lost property is a way taxpayers can find financial relief for their recovery costs. This includes deductibles on any disaster-related claims.
Both the number of taxpayers who claim a casualty loss in a given year and the losses claimed can vary. For example, in 2005 more than 800,000 taxpayers claimed casualty losses including those related to Hurricane Katrina and the other Gulf Coast hurricanes. The average loss claimed was about $18,000. In 2012 about 160,000 taxpayers claimed casualty losses including those related to Hurricane Sandy but the average loss claimed was almost $31,000.
Taxpayers face important choice about when to deduct casualty loss
Taxpayers in a federal disaster area who incur disaster-related casualty losses have a choice about when to claim their losses. A disaster-related casualty loss may either be claimed on a tax return for the year the disaster occurred or on the prior year’s original or amended return.
For example, a loss occurring in 2016 may be claimed on the taxpayer’s 2016 tax return filed in 2017, or on an original or amended 2015 return filed in 2016. While claiming the loss on the 2015 return results in a faster tax refund, waiting to claim the loss may result in greater tax savings.
“Tax forecasting and planning plays an important but complex role in recovering from a disaster,” said Pickering. “Taxpayers have to weigh their need for additional resources to cover their immediate costs against their projected tax outcome of waiting to claim the loss on the current year return they’ll file next year. They also need to consider the time it will take to calculate and substantiate their deductible loss.”
For example, if a Houston-area taxpayer had $10,000 in unreimbursed losses related to the April 17, 2016 flooding, they could amend their 2015 return they had already filed to claim those losses. This would accelerate the tax benefit which could help them if they need that benefit as early as possible. However, if the taxpayer expects to have higher income and a higher tax liability in 2016, they may choose to wait until they file their 2016 return to claim the casualty losses to offset that increase.
Record requests from affected taxpayers will be expedited
Affected taxpayers may need to reconstruct tax records lost in the disaster in order to apply for a disaster loan or grant. The IRS will waive the usual fees and expedite requests for a copy of a tax return (Form 4506) or for a transcript of a tax return (Form 4506-T).
“H&R Block clients can visit a retail tax office to get copies of their tax returns or access their MyBlock account, even if they prepared their taxes on their own using H&R Block software,” Pickering said.
H&R Block or Block Advisors clients can visit any year-round office for tax assistance and to request copies of tax returns prepared in H&R Block offices or using H&R Block software. Taxpayers may also contact the IRS at (800) 829-1040 or www.irs.gov to get copies of past tax returns and transcripts.
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