Dealing with Disasters from an Individual Tax Perspective - YouTube video text script

Hello, and welcome to today’s webinar, Dealing with Disasters from an Individual Tax Perspective. I see it’s the top of the hour, and we’re glad you’ve joined us today. My name is David Higgins and I’m a Stakeholder Liaison with the Internal Revenue Service. I will be your moderator for today’s webinar, which is slated for approximately 120 minutes.

The webinar offers two IRS continuing education CE credits. Participants earn two IRS CE credits and a related certificate of completion by attending the live broadcast of the webinar for at least 100 minutes after the official top of the hour start time, and answering at least four polling questions during the live broadcast. The polling question example to test your pop-up blocker will count as an attendance check toward the polling question’s response requirement. The webinar will be recorded for future posting. Please note, continuing education credit or certificates of completion are not offered if you view any version of our webinars after the live broadcast.

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Okay, we are going to stop the polling now. And let’s see how the majority of you answered. It looks like for those of you who selected B or C, I encourage you to visit IRS.gov and enter stakeholder liaison in the search bar. We actually got 82% and majority of you know, but you can see a link for stakeholder liaison local contacts at our website IRS.gov that takes you to our page to learn more about our role as a collaborative outreach champion and how to reach your stakeholder liaison.

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And, again, welcome. We are glad you joined us for today’s webinar. Before we move along with our session, let me make sure you are in the right place. Today’s webinar is Dealing with Disasters from an Individual Tax Perspective. This webinar is scheduled for approximately 120 minutes from the top of the hour.

So, now, let me introduce today’s speakers. We are joined by Stakeholder Liaison’s Jeffrey Latessa and Christopher Green with the Internal Revenue Service Communications and Liaison Division. Christopher has 15 years of experience in the banking industry working with consumer and business account owners to achieve economic success and financial security. Furthermore, he has several years of tax preparatory experience. Christopher is an Alumnus of Bowie State University, where he obtained a Bachelor’s Degree in Business, with a concentration in Accounting.

Jeffrey joined the IRS in 2008. Prior to joining the Communication and Liaison Division, he worked as a Lead Case Advocate with the Taxpayer Advocate Service and in Identity Theft Victim Assistance. He has a Bachelor’s Degree in Communications from the University of Massachusetts at Amherst and a Juris Doctor from the University of Connecticut School of Law. So, let’s give a warm virtual welcome to Jeff and Christopher.

And with that, I’m going to turn it over to Jeff to begin the presentation. Jeff, the floor is yours.

Thanks, David, and welcome everyone to today’s seminar on Dealing with Disasters from an Individual Tax Perspective. While tax issues may not be the first concern of survivors of casualties, thefts, and disasters, eventually your clients may qualify for some of these tax relief provisions. I’m hoping that the presentation serves as a refresher of those relief provisions as, unfortunately, federal disaster declarations are becoming more common.

So, today, we’ll walk you through some of the tax-related issues on disaster relief. I want to familiarize you with a number of different disaster-related tax topics. They include identifying types of relief available to taxpayers in a disaster area, calculating disaster area casualty losses, documenting casualty losses in a disaster area, and obtaining information about federally declared disasters. There’ll be site references for the various disaster topics being discussed on the slides, if you want more detailed information on any specific issue.

Now, the tax-related disaster relief discussed in the subsequent slides related to federally declared disasters may upon approval of the Secretary of the Treasury, also be provided to taxpayers in State declared disaster areas per the Filing Relief for Natural Disasters Act. President Trump signed the legislation into law on July 24, 2025, and it became effective immediately.

This slide is taken directly from the Filing Relief for Natural Disasters Act. It identifies the section of the law that defines qualified State disaster and State. When the federal disaster tax relief is granted, including for taxpayers in an area declared a qualified State disaster, the IRS will issue a news release identifying the relief and the disaster area. The news release will be posted on IRS.gov.

So, now, let’s discuss the types of disaster relief. Please note, for purposes of today’s presentation, a disaster area means any area determined by the President of the United States to warrant assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. You can find out if a weather-related event was designated by the President as a federally declared disaster area online. Federal disaster declarations are posted to FEMA.gov and some are posted to the IRS website. It’s important to note that not all federally declared disasters are posted to the IRS website and we’ll discuss why shortly.

Now, there’s two types of federal relief available to victims of disasters. The two main types are: administrative relief, which generally postpones certain due dates; and tax relief, tax relief includes deducting casualty losses. There are also safe harbor valuation provisions under Revenue Procedure 2018-08 as well as the election to claim the disaster loss on a prior year tax return under Internal Revenue Code Section 165, which are available to victims of disasters.

First, we’re going to discuss administrative relief. On this slide, you can see the different types of administrative relief that can be made available for federally declared disasters. Administrative relief is granted by the IRS and geographical locations designated by the President as federally declared disaster areas and when FEMA designates an area to receive individual, or individual and public assistance. We’ll talk more about the FEMA individual assistance program later in the presentation.

Now, when this happens, the IRS may grant additional time to file returns and pay taxes. The types of administrative relief offered are granting additional time to file certain types of tax returns like Forms 1040, 1120, or 1065. Granting additional time to pay certain types of taxes like estimated taxes. Granting additional time to perform time-sensitive acts such as making contributions to a qualified retirement plan, filing a petition with the tax court, or filing a claim for credit or refund of any tax. It also gives the IRS the ability to waive or abate interest and penalties, both late filing and late payment penalties.

For a full list of administrative relief provisions or postponed due dates, like making contributions to a qualified retirement plan, see Regulation 301.7508A-1(c). Also, there’s an extensive list of postponed due dates for time-sensitive acts for both individuals and businesses in Revenue Procedure 2018-58. So, unless the IRS disaster news release for a particular disaster limits the administrative relief for that particular disaster, all the due dates listed in Regulation 301.7508A-1(c) and Revenue Procedure 2018-58 will be postponed.

Now switching topics, I’d like to talk about qualified disaster recovery distributions. Qualified disaster recovery distributions are distributions from qualified retirement plans. These distributions can be up to $22,000 per disaster. And these distributions can be taken by individuals whose principal place of abode is located in the qualified disaster area during the disaster declaration incident period and who have sustained an economic loss by reason of the qualified disaster. Disaster recovery distributions must be made on or after the first day of the disaster incident period or the date of the disaster declaration and up to 180 days after one of those dates.

Qualified disaster recovery distributions are not subject to 10% additional tax on early distributions from qualified retirement plans. Distributions are to be included in gross income ratably over the 3-year taxable year period unless they are repaid. Qualified disaster recovery distributions may be repaid at any time during the 3-year period beginning on the day after the date on which the distribution was received. See IRS Publication 590B, distributions from individual retirement arrangements for more details.

Now, another type of administrative relief offered by the IRS is the waiving of fees for obtaining copies of tax returns and the expedited handling of requests for copies of tax returns or tax return transcripts. Copies of actual tax returns cost $50 and can take weeks to obtain. Those $50 fees are waived and the tax return requests are expedited.

Now, in order to get fees waived and requests expedited, you should write the applicable disaster title information, including the disaster number in red at the top of Form 4506, which is the request for a copy of a tax return, or 4506-T, which is a request for transcripts of a tax return. Both forms are available on the IRS website. Copies of tax returns and tax return transcripts can be obtained at the IRS Taxpayer Assistance Centers with an appointment, by phone, by mail, online, or through a tax preparer who is qualified to use the transcript delivery service through IRS e-Services.

Just so you know, the IRS maintains a listing of zip codes located in federally declared disaster areas. Only Forms 4506 and 4506-T filed with these zip codes can have the fees waived. These relief provisions are less important than they used to be due to IRS transcripts being available online for those taxpayers with an IRS online account and practitioners able to quickly obtain transcripts using IRS e-Services transcript delivery system.

Note, in extension to file, the Form 4868, Application for Automatic Extension of Time to File a U.S. Individual Income Tax Return filed after the original due date of the return, but before the postponed due date, must be filed by paper.

Now, administrative relief is granted only to affected taxpayers. So, who is an affected taxpayer? An affected taxpayer is generally any individual whose principal residence is located in a disaster area, the spouse of an affected taxpayer when filing a joint return, or any business entity or sole proprietor whose principal place of business is located in a disaster area. In addition, an affected taxpayer is any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records are located in the disaster area.

Now, there are a few more categories of who is an affected taxpayer, which can be found in the regulations cited at the bottom end of this slide, but we’ve covered the main ones. It’s important to remember that you don’t have to live in a federally declared disaster area in order to be an affected taxpayer. If your spouse lives in a federally declared disaster area, assuming you file a joint return, or you’re a taxpayer who’s not located in a disaster area, but whose records are, you can qualify as an affected taxpayer.

Being an affected taxpayer means that the individual can qualify for any administrative relief provisions we previously discussed, like the granting of additional time to file certain types of tax returns. Let me repeat that because it’s very important. Being an affected taxpayer means that an individual can qualify for any administrative relief provisions, like being granted additional time to file tax returns, pay taxes, or perform other time sensitive tasks.

All right, so one common question that we often get is, does a taxpayer need to be located in a federally declared disaster area to be granted administrative relief? The answer to that is no, but they must self-identify with the IRS by calling 866-562-5227 to be granted additional time to file and pay, or they might receive notices from the IRS regarding late filing and late paying.

Basically, the IRS puts indicators on the accounts of taxpayers whose zip codes are located within the disaster area, granting them additional time to file and pay. So, if your client is located outside the disaster area, they need to inform the IRS that they’ve been impacted by the disaster by calling that phone number 866-562-5227. Phone number can be found at the IRS website, which is IRS.gov, and the IRS disaster press releases.

Now that wasn’t a polling question, but I believe now would be a good time for our first polling question.

Yes, it is, Jeff. So, audience, here’s our first polling question, and this is a true or false. A taxpayer needs to be located in a federally declared disaster area to be granted administrative relief. Select A for true; or B for false. Take a moment and click the radio button that answers the question. If you do not receive the polling question, please enter only the letters A or B in the Ask Question text box. Your response would be timestamped.

Audience, please remember you need to answer at least four polling questions and participate in the live broadcast from the official start time for at least 100 minutes to earn your two IRS continuing education credits. The polling question example we did at the beginning of this presentation does count towards that requirement. I’ll give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay, we’re going to stop the polling now and let’s share the correct answer on the next slide. The next slide, the correct response is B, taxpayer does not need to be located in the federally declared disaster area to be granted administrative relief. We had 84% say false, so that’s an excellent response rate.

So, Chris, it’s time to turn it over to you.

Perfect. Thank you, David, and thank you all for attending today. I want to start by saying there are two types of disaster declarations provided for in the Robert T. Stafford Act. Those are emergency declarations and major disaster declarations. Both declaration types authorize the President to provide supplemental federal disaster assistance. However, the events related to the two different types of declarations, the scope and the amount of assistance differ. We will discuss these declaration types in more detail in a few minutes.

Now, we’re going into a topic that can be a bit confusing, because it deals with both FEMA and the IRS, so bear with me. When the President declares a federal disaster, FEMA determines what counties, and if you live in Louisiana, parishes make up the disaster area. FEMA also determines what type of assistance they will offer in the disaster area. FEMA assistance can come in one of three forms. Those are public assistance, individual assistance, or a combination of both individual and public assistance.

So, what’s the difference between public assistance and individual assistance? Here’s your answer. FEMA public assistance is when FEMA provides grants to State and local governments for items like: debris removal, repairing roads and bridges, public buildings and public utilities. On the other hand, FEMA individual assistance is when FEMA provides grants to individuals for items like: temporary housing, housing repair and replacement as well as funeral expenses, just to name a few.

Let’s go to the next slide to explain why the types of assistance FEMA provides and how the types of assistance FEMA provides have tax implications for individual taxpayers. Okay, when the President declares a federal disaster, FEMA will determine what counties or parishes made up a disaster area. If you look at the chart on your slide, you’ll see that if FEMA designates an area to receive public assistance only, that area will usually not qualify for administrative relief. So, if a disaster has only areas receiving public assistance, they’re not granted extra time to file their taxes or to perform other time sensitive acts. However, if there is a combination of public and individual assistance, folks in those areas getting both public and individual assistance will receive administrative relief. This change was made in 2022.

Any time FEMA designates an area to receive individual, and individual and public assistance, the IRS will grant administrative relief. Taxpayers can tell if the IRS has provided administrative relief, as discussed earlier, the IRS will typically put out a press release or a news release on IRS’s website, the landing page, for disaster tax relief when individual or individual and public relief are offered.

These press releases outlined a specific type of administrative relief being granted, like the proposed due dates for tax returns and payment deadlines, as well as casualty loss deductions. Always make sure to check the FEMA website to see if a State has received a federal disaster declaration. This is important because the IRS does not issue a press release when a federally declared disaster is announced, when FEMA offers only public assistance, even though public assistance qualifies taxpayers to claim casualty loss deductions. That is why it is important to check the FEMA website.

Due to the Tax Cuts and Jobs Act, all personal casualty loss deductions must be attributable to a federally declared disaster and the property location must be in a State receiving a federal disaster declaration, which may or may not be in a federally declared disaster area. Generally, you must deduct a casualty loss in the year that the loss is sustained. However, if you have a casualty loss from a federally declared disaster that occurred in a State receiving a federally declared disaster declaration, you can elect to deduct the casualty loss in the tax year, immediately preceding the year of the sustained loss.

To make this election, the casualty loss deduction must be attributable to a federally declared disaster and the property must be in a location within the federally declared disaster area. For emergency declarations, administrative relief can be granted in areas designated as receiving public assistance only. Emergency declarations do qualify for casualty loss deductions if the casualty loss is attributable to the disaster and if the property is located in the State receiving a federal disaster declaration.

Now, let’s look at an example of an image of a FEMA disaster map. This particular example is from a Kentucky disaster from 2022. It is for severe storms, a straight line winds, flooding and tornadoes disaster. In this case, the president declared that a major disaster existed in the State of Kentucky, then FEMA determined the geographical areas covered. You can see that the map is color coded by county. If you look at the sidebar on the map, you will see that each of the colors represent different FEMA disaster declaration classifications.

So, let’s go through them one at a time. The white areas on the map are counties not designated by FEMA as federally declared disaster areas. The counties in white would generally not receive any type of administrative relief, for example, late filing of tax returns or late payment of taxes. Also, they would not be able to deduct casualty losses on their returns either.

The gold areas on the map are designated by FEMA to receive public assistance only. As such, they would qualify for only tax relief. The brownish areas on the map are counties designated by FEMA to receive individual and public assistance. They would qualify for both administrative relief and tax relief. The IRS issues disaster press releases outlining the specific type of administrative relief being made available to taxpayers in those designated counties and the types of tax relief available as well.

Again, all IRS press release when the IRS grants administrative and tax relief are posted to the IRS website. Please read these press releases closely for the types of relief being offered as the postponed filing due dates do not apply to all tax forms and the postponed payment due dates do not apply to all types of taxes.

Moving on, let’s turn our attention to personal casualty losses, okay? What exactly is a personal casualty loss? According to Revenue Ruling 72-592, a casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, and unusual.

So let’s talk about what is sudden, unexpected, and unusual. Sudden means swift, not gradual or progressive. Unexpected means ordinarily unanticipated or unintended. And unusual means not a day-to-day occurrence and not typically of the activity in which you are engaged. The terms sudden, unexpected, and unusual are used to describe the characteristics of a casualty, and they were established through the various revenue rulings and in court cases.

Recently, as we’ve discussed, casualties have occurred in disaster areas where they have been hurricanes, wildfires, tornadoes, earthquakes, and floods. These weather-related events have been determined to be sudden, unexpected, and unusual, and therefore the damage, destruction, or loss of property resulting from them meet the definition of a casualty.

Let’s talk about casualty losses and the year of occurrence compared to the year sustained. Casualty losses are deductible during the tax year that the loss is sustained. This is generally the tax year that the loss occurred. However, a casualty loss may be sustained in a year after the casualty occurred. If in the year of the casualty, there is a claim for reimbursement with a reasonable prospect of recovery, the loss isn’t sustained until you know with reasonable certainty whether such reimbursement will be received.

If you are unsure whether part of the casualty or theft loss will be reimbursed, don’t deduct that part until the tax year when you become reasonably certain that it won’t be reimbursed. The later tax year is when your loss is sustained.

Before I move on, I think we should give those attending for CE credit another opportunity to check in and answer a polling question. Sound good, David?

It works for me, Chris. Audience, the next polling question states, a personal casualty loss is the damage, destruction, or loss of personal-use property resulting from an identifiable event that is: A, unexpected; B, sudden; C, unusual; or D, all of the above. Take a moment now and click the radio button that answers the question. If you do not receive the polling question, please enter only letters A, B, C, or D that corresponds with your response in the Ask Question text box to timestamp your response. I’ll give you a few more seconds to make your selection or submit your answer in the Ask Question feature.

Okay, I’m going to stop the polling now and let’s share the correct answer on the next slide. The correct answer is D, all of the above. And so, I see that 98%. So, Chris, they’re listening. So, I’m going to turn it back to you.

Absolutely, 98% is great, wonderful job audience. Moving on, you will see on this in the next few slides, we will review the three specific types of casualty losses which are described in IRS Publication 547, labeled as Casualties, Disasters, and Thefts. Those three types are: federal casualty losses; disaster losses; and the last one is qualified disaster losses. Now, all of these three types of losses refer to federally declared disasters. And of course, you need to know that the requirements for each loss varies, okay?

Now, let’s get more into depth here. As you can see on your screen, a federal casualty loss is an individual’s casualty or theft loss of personal-use property that is attributable to a federally declared disaster. The casualty loss must occur in a State receiving a federal disaster declaration. If you suffered a federal casualty loss, you are eligible to claim a casualty loss deduction. If you suffered a casualty or theft loss of personal-use property that wasn’t attributable to a federally declared disaster, it is not a federal casualty loss, and you may not claim a casualty loss deduction unless the exception applies.

And as we discussed, the general rule is that casualty losses of personal-use property are not attributable to a federally declared disaster. They’re not deductible. There is, however, an exception. So let’s review it real quick. The exception to the rule limiting the deduction for personal casualty and theft losses to federal casualty losses applies where you have personal casualty gains. In this case, you may deduct personal casualty losses that are attributable to a federally declared disaster to the extent that they do not exceed your personal casualty gains.

Now, let’s look at a disaster loss. A disaster loss is a loss that is attributable to a federally declared disaster and that occurs in an area eligible for assistance pursuant to the Presidential declaration. The disaster loss must occur in a county eligible for public and individual assistance, or both. Disaster losses are not limited to individual personal-use property and may be claimed for individual business or income-producing property and by corporations, S corporations, and partnerships. Here’s some very important information. If you suffered a disaster loss, you are eligible to claim a casualty loss deduction and to elect to claim the loss in the preceding tax year.

Let’s round it up with the third type of loss and take note here, a qualified disaster loss. This includes an individual’s casualty and theft loss of personal-use property that is attributable to the specific disasters noted on the slides before you. The last bullet point incorporates One Big Beautiful Bill updates to the law which are the September 2, 2025 declaration date and the July 4, 2025 and August 3, 2025 incident date.

Now, continuing on, again, this is pretty straightforward. If you suffered a qualified disaster loss as defined on the previous slide, you are eligible to a casualty loss deduction to elect to claim the loss in the preceding tax year and deduct the loss without itemizing other deductions on your Schedule A, Form 1040.

For the tax years 2018 through 2025, if you’re an individual, casualty losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster, that’s a federal casualty loss. Personal-use property is other than business property or income producing property. If the event causing you to suffer a personal casualty loss not attributable to a federal declared disaster occurred before January 1, 2018, but the casualty loss wasn’t sustained until January 1, 2018 or later, the casualty loss is not, I repeat, not deductible.

Now, let’s take a minute and review a casualty scenario and determine if a casualty loss has occurred and if the loss is deductible for federal tax purposes. All right, as a result of a storm, a tree fell on your house in December 2022 and you suffered $5,000 in damage. The President didn’t declare the storm a federally declared disaster, and you subsequently filed a claim with your insurance company and reasonably expected the entire amount of the claim to be covered by your insurance company.

Well, here’s how it plays out. In January 2024, your insurance company paid you $3,000 and determined it didn’t owe you the remaining $2,000 from your claim. Therefore, the $2,000 personal casualty loss is sustained in 2024, even though the storm occurred in 2022. Because the $2,000 isn’t a federal casualty loss, it isn’t deductible as a casualty loss under the current limitations.

If you recall earlier in the presentation, we introduced a new law, which allows taxpayers in areas approved by the Secretary of the Treasury as State declared disasters to also receive federal disaster tax relief. In addition to that law, another new law, Section 70109 of the One Big Beautiful Bill Act amended the IRC Section 165, so that qualifying deductible individual personal casualty losses shall be allowed only to the extent that they are attributable to either a federally declared disaster or a State declared disaster. The addition of State declared disaster is new, and this is applicable to taxable years beginning after December 31, 2025.

Now, something to note is that Section 70109 of the One Big Beautiful Bill Act also amended the IRC 165 to identify this section of 165 discussed in the previous slide. This applies to taxable years beginning after 2017. The previous two slides identify that, in general, IRC Section 165 allows qualifying deductible individual personal casualty losses only to the extent that they are attributable to either a federally declared disaster or a State declared disaster. Again, the addition of State declared disaster is new with section 70109 as of the One Big Beautiful Bill Act beginning after December 31, 2025.

This slide identifies the exception to that rule. Taxpayers may deduct individual personal casualty losses that are not attributable to a federally declared disaster, to the extent that they do not exceed their personal casualty gains. Section 70109 of the One Big Beautiful Bill Act extended that exception to State Declared Disasters approved by the U.S. Secretary of Treasury, as well as federally declared disasters. Since Section 70109 allows taxpayers in State declared disaster areas to qualify for disaster tax relief, the section provides definition for the term State Declared Disasters, and more specifically, the word State.

So let’s talk about it. The term State declared disaster means with respect to any State, any natural catastrophe, including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought, or regardless of cause, any fire, flood, or explosion in any part of the State, which in the determination of the Governor of the State or Mayor, in the case of District of Columbia and the Secretary causes damage of sufficient severity and magnitude to warrant the application of the rules in this section.

Now pay attention, the term State includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. I hope you got that information.

Hey David, before I turn it over to my partner, Jeff. If I think now we should pause here for a polling question. Let’s have it.

Absolutely. Audience, it looks like our third polling question, we have another true or false question. Casualty losses of a personal-use property are deductible only if the loss is attributable to a federally declared disaster, federal casualty loss. Select A if it’s true; select B for false. Take a moment and click the radio button that answers the question. If you did not receive the polling question, please enter only the letters A or B in the Ask Question text box. And remember, your response is timestamped. I’ll give you a few more seconds to make your selection or to submit your answer in the Ask Question feature.

Okay, we are going to stop the polling now and let’s share the correct answer on the next slide. The correct answer is A, true. Let’s take a look at how many of you responded. We had 89% of you responded correctly. That’s an excellent response rate. Thank you.

So, now I’m going to turn it over to Jeff. I’ll let you continue now.

Thanks, David. Okay. So, there are two types of disaster declarations provided for in the Stafford Act, emergency declarations and major disaster declarations. Both declaration types authorize the President to provide supplemental federal disaster assistance. However, the events related to the two different types of declaration in scope and amount of assistance differ. The President can declare an emergency for any occasion or instance when the President determines federal assistance is needed. Emergency declarations supplement State and local or Indian tribal government efforts in providing emergency services, such as the protection of lives, property, public health, and safety, or to lessen or avert the threat of a catastrophe in any part of the United States.

The total amount of assistance provided for in a single emergency may not exceed $5 million. The President shall report to Congress if this amount is exceeded. A Governor or Tribal Chief Executive may request an emergency declaration in advance or anticipation of the imminent impact of an incident that threatens such destruction as could result in a major disaster.

When an emergency exists for which the primary responsibility rests with the federal government, the President may declare an emergency without a request from the Governor of the affected State or the Tribal Chief Executive of the affected tribe. The President can declare a major disaster for any natural event, including hurricanes, tornadoes, storms, high water, wind-driven water, tidal waves, tsunamis, earthquakes, volcanic eruptions, landslides, mudslides, snowstorms or drought, or regardless of cause, fire, flood or explosion, that the President determines has caused damage as such of such severity that it is beyond the combined capabilities of state and local governments to respond. A major disaster declaration provides a wide range of federal assistance programs for individuals and public infrastructure, including funds for both emergency and permanent work.

Now, let’s talk a little bit about computing casualty losses. A casualty loss is limited to the lesser of the adjusted basis before the disaster or the decrease in fair market value as a result of the disaster, decreased by any insurance or other reimbursements. And, there are a few things that one needs to remember when it comes to loss reimbursement. If in the year of the casualty, there’s a claim for reimbursement and there’s a reasonable prospect of recovery, no portion of the loss that may be reimbursed is allowed. So, you must reduce your loss even if you do not receive the payment until a later tax year. If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss, otherwise you can’t deduct any reimbursed portion of the casualty.

Now, let’s talk a little bit about valuing your casualty loss and the methods by which you may be able to do so. There are two main methods for determining the amount of a decrease in the fair market value. The first method is done by a competent appraisal. The appraisal must recognize the effects of any general market decline affecting undamaged as well as damaged property, which may occur simultaneously with the casualty, so that any deduction under this section shall be applied to the actual loss resulting from damage to the property.

The second method is by cost of repairs you actually make. The cost of repairing damaged property isn’t part of the casualty loss. Neither is the cost of cleaning up after a casualty, but you can use the cost of cleaning up or making repairs after a casualty has a measure of the decrease in fair market value if you meet the following conditions. The repairs must actually be made. The repairs must be necessary to bring the property back to its condition before the casualty. The amount spent for repairs is not excessive. The repairs take care of the damage only. And the value of the property after the repairs isn’t, due to the repairs, more than the value of the property before the casualty.

There are some other methods of determining the decrease in fair market value. They’re the safe harbor provisions discussed in Revenue Procedures 2018-08. They’re noted on this slide, and we’re going to discuss each individually over the next group of slides.

Let’s talk first about the estimated repair cost safe harbor method. The estimated repair cost safe harbor method allows you to figure the decrease in the fair market value of your personal-use residential real property using the lesser of two repair estimates prepared by separate and independent licensed contractors. The estimates must detail the itemized costs to restore your property to its condition immediately before the casualty. The estimated repair cost safe harbor method is limited to casualty losses of $20,000 or less. This safe harbor is available to personal-use residential real property only, and the property must be located in a federally declared disaster area.

Let’s continue with the de minimis method. The de minimis safe harbor method allows you to figure the decrease in the fair market value of your personal use residential real property based on a written good-faith estimate of the cost of repairs required to restore your property to its condition immediately before the casualty. You must keep documentation showing how you estimated the amount of your loss, and the de minimis safe harbor method is available for casualty losses of $5,000 or less.

Next up is the insurance method. The insurance safe harbor method allows you to figure the decrease in the fair market value of your personal use residential real property based upon the estimated loss in reports prepared by your homeowners’ or flood insurance company. These reports must set forth the estimated loss you sustained from the damage to or the destruction of your property.

And on to the contractor safe harbor. Under the contractor safe harbor method, you may use the contract price for the repairs specified in a contract prepared by an independent and licensed contractor to determine the decrease in the fair market value of your personally used residential real property. This safe harbor method doesn’t apply unless you’re subject to a binding contract signed by you and the contractor, setting forth the itemized costs to restore your personal-use residential real property to its condition immediately before the casualty.

And, finally, we’re going to talk about the disaster loan appraisal method. Under the disaster loan appraisal safe harbor method, you may use an appraisal prepared to obtain a loan of federal funds or a loan guarantee from the federal government that identifies your estimated loss from a federally declared disaster to determine the decrease in the fair market value of your personal use residential real property. Just like all the other safe harbor provisions, this safe harbor is available for personal-use residential real property only and the property must be located in a federally declared disaster area.

Now, on this slide, we’re still discussing safe harbors but with a slight twist, these safe harbors are for personal belongings. First, the de minimis method. Under the de minimis method you can make a good-faith written estimate of the decrease in the fair market value of your personal belongings. You must maintain records describing your affected personal belongings as well as your methodology for estimating your loss. This method is limited to losses of $5,000 or less.

Finally, we have the replacement cost safe harbor method. To use the replacement cost safe harbor method you must first determine the current cost to replace your personal belongings with a new one and then reduce that amount by 10% for each year you’ve owned the personal belonging. You can see the personal belongings valuation table in Revenue Procedures 2018-08. If you choose to use the replacement cost safe harbor method then you must use that method for all your personal belongings with certain exceptions. These safe harbors are available for personal belongings that are located in a federally declared disaster area.

Now, please note that each of the safe harbor methods we’ve discussed are subject to additional rules and exceptions. For more detailed information on these rules and exceptions you’ll want to see IRS Revenue Procedure 2018-08, which you can find online.

Now, in an earlier slide, we discussed deducting personal casualty losses associated with qualified disasters. To reemphasize the information we provided, the One Big Beautiful Bill Act extended the rules to qualified disasters declared by the President between January 1, 2020, and September 2, 2025. The FEMA incident date period for these disasters has to have begun on or after December 28, 2019 and on or before July 4. 2025 and must have ended no later than August 3, 2025. Now, the incident date is the date or dates of the actual disaster. The declaration date is when the President formally designates a federal disaster. The declaration date is usually after the incident date.

Now, for personal casualty losses for disasters with a FEMA incident date period that began on or after December 28, 2019 and on or before July 4, 2025, the rules eliminate the requirement that personal casualty losses must exceed 10% of AGI, eliminate the requirement that taxpayers must itemize deductions to claim a casualty loss. The casualty loss would increase an individual standard deduction by the net qualified disaster casualty loss and increase the $100 limitation per casualty to $500.

Now, I feel like we shared a lot of information, so now would be a good time to check in with the audience.

Hello, audience. Hopefully you heard, Jeff, so it’s your time to weigh in. Our next polling question states which revenue procedure discusses the safe harbor provisions? Safe harbor provisions are in Revenue Procedure 2009-12, answer A; Answer B, if it’s Revenue Procedure 2018-08; C, Revenue Procedure 2018-24; or D, Revenue Procedure 2020-08. Take a moment to click the radio button that answers the question. If you did not receive the polling question please enter only the letters A, B, C or D that corresponds with your response in the Ask Question text box to timestamp your response. I’ll give you a few more seconds to make your selection or to submit your answer in the Ask Question feature.

Okay, we are going to stop the polling now, and let’s share the correct answer on the next slide. The correct answer is B. Look at Revenue Procedure 2018-08, and I see that 88% of you answered B, Revenue Procedure 2018-08, and so that’s an excellent response rate.

Well, it looks like, Chris, I’ll be turning the mic over to you. Are you ready?

I’m ready to go, David. Let’s keep the ball rolling. Now, folks, to reiterate a couple of changes enacted under the One Big Beautiful Bill Act, which we highlighted earlier, it extended the application dates for taxpayers qualifying for special rules for qualified disaster-related personal casualty losses. The applicable dates for taxpayers qualifying for eligible tax treatment for a qualified disaster loss are extended to include a major disaster or FEMA Code DR declared by the President during the period between January 1, 2020 and September 2, 2025. The major disaster must have an incident period that began on or after December 28, 2019 and on or before July 4, 2025 and must end no later than August 3, 2025.

Now, let’s talk about the general application rules regarding a personal casualty loss deduction for federal declared disasters. Losses of personal use residential real property are calculated on Form 4684 and are subject to these general limitations. As you can see, number one, a casualty loss is allowed only to the extent that the amount exceeds $100 and the casualty loss must exceed 10% of adjusted gross income.

Also, taxpayers must itemize their deductions to deduct a casualty loss. All of these rules must be met to claim a casualty loss. No deduction is permitted in a tax year for the loss or any portion of the loss when they claim for compensation is outstanding for which there is a reasonable prospect of recovery. Also, taxpayers who deduct a casualty loss attributable to a federally declared disaster must include the FEMA disaster declaration number on Form 4684. To be clear, major disaster declarations begin with the letters DR, okay, with the letters DR.

Now, there are three other less common types of FEMA declarations. Those are emergency declarations, which qualify for the disaster casualty loss deductions under Internal Revenue Code 165(h)(5). The second, fire management declarations which are ineligible for casualty loss deductions. And third, fire suppression authorizations which are also ineligible for casualty loss deductions. Again, these last 3 types of FEMA declarations are less common, so unless your clients live in a fire-prone area, you’re unlikely to see them.

All right, I want to take a little bit of time and talk about computing a casualty loss. We have an example on your screen from IRS Publication 547 on how to do so. In this example, a tornado destroyed a home, and the tornado was attributable to a federally declared disaster and located in a presidentially declared disaster area. The home cost was $144,800 when it was purchased several years ago. This was the only casualty loss or theft loss for the year.

The fair market value of the property immediately before the tornado was $180,000. Unfortunately, the fair market value immediately after the tornado was $35,000, so basically the cost of the land. The loss is $144,800, which is the lesser of the adjusted basis of the property or the decrease in the fair market value before the insurance reimbursement. The taxpayer then collected $130,000 from the insurance company, which is going to reduce their loss. Their loss is further reduced by $100 and 10% of their adjusted gross income, which is $80,000. This means their deductible casualty loss is $6,700, which is deducted as an itemized deduction on their tax return.

Once you claim a casualty loss, you are not done. If you claim a casualty loss, you must adjust the basis in your property. So to do so, you would do this, decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. The result is your adjusted basis in the property. Also, increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property. Increase its value or adapt it to a different use. To make this determination, compare the repaired property to the property before the casualty.

Listen, I highly recommend and encourage everyone in here to take a look at Publication 547, which is casualties, disasters and thefts. It has a lot of examples and scenarios for computing your casualty loss and figuring the deduction. As I previously mentioned, due to the Tax Cuts and Jobs Act, all personal casualty loss deductions must be attributable to a federally declared disaster, and the property location must be in a state receiving a federal disaster declaration, which may or may not be in a federally declared disaster area.

Generally, you must deduct a casualty loss in the year the loss is sustained. However, if you have a casualty loss from a federally declared disaster that occurred in a state receiving a federally declared disaster, you can elect to deduct that casualty loss in the tax year, immediately preceding the year of the sustained loss.

To make this election, the casualty loss deduction must be attributable to a federally declared disaster, and the property must be located within the federally declared disaster area. If you make this election, the loss is treated as having occurred in the preceding tax year. You must make the choice to take your casualty loss for the disaster in the preceding year on or before the date that is 6 months after the regular due date for filing your original return, without extensions for the disaster year.

If you have already filed your return for the preceding year, you can elect to claim the disaster loss against that year’s income by filing an amended return. So, for individuals filing an amended return using Form 1040-X, you want to make the election in Part 1 of Section D on your prior year Form 4684, and attach it to the amended return that claims the disaster casualty loss deduction.

Now, taxpayers may be looking towards you, the tax professional, to determine whether it is in their best interest to claim any disaster-related casualty losses in the year of the casualty loss, or to elect to claim the casualty loss in the year preceding the casualty loss. You, the tax professional, will have to make the determination on a case-by-case basis.

Okay, so Revenue Procedure 2016-53 outlines the procedures and requirements on how to make the election to deduct casualty losses in the year prior to the loss. But remember, the election to deduct a casualty loss in the year prior to the casualty is available for casualty losses in federally declared disaster areas only. Can’t stress that enough. In order to make this election, a taxpayer must include the original federal tax return or amended federal tax return, an election statement indicating the taxpayer is making a Section 165(i) election.

The election statement must contain the following information. Number one, it must have the name or a description of the disaster and date or dates of the disaster for which they gave rise to the loss. Number two, it must have the address including the city, town, county, parish, state, and zip code, where the damaged or destroyed property was located at the time of the disaster. And you will need to include the FEMA declaration number, which you can find at FEMA and IRS websites.

Now, let’s touch on documenting casualty losses. You should always attempt to keep records that support your loss. Reconstructing records after a disaster may be essential for tax purposes, for getting federal assistance or insurance reimbursement. After a disaster, homeowners might need to keep certain records to prove their loss. The more accurate the loss is estimated and documented, the more money or the loan or grant money may be available to you. This slide reviews documentation recommended to support the casualty loss claim. Please note that this list is not all inclusive, but it covers general information needed in order to document a casualty in a federal declared disaster area.

Added documentation will depend upon the type of asset involved, so you should probably take photographs as quickly as possible after the event to establish the extent of the damage. You may want to see if there’s any pictures that exist showing the property before the damage occurred. Maybe contact a title company or bank that may have handled your purchase of – copies of your escrow papers, but probably the best way for documenting losses is by taking a video of your home, both inside and outside.

There are some cases where you may be able to, if you have some advanced warning of a severe weather event, like a hurricane might be coming into your direction, and those cases, making a video while walking around your house before the disaster strikes and then making another video after the disaster may provide some of the best lost documentation that you could get for tax purposes and for insurance purposes.

So, let’s go over what forms to file. How you report gains and losses depends on whether the property was a business income producing or whether it was a personal-use residential real property. If you have a personal use residential real property and a casualty loss, you would complete Form 4684 Section A and Form 1040 Schedule A. If you have a qualified disaster, a disaster with an incident date between December 28, 2019 and July 4, 2025 you would also include the qualified disaster casualty loss along with your standard deduction on Form 1040 Line 12.

Also, if you have a gain on a casualty loss, you report it on your Form 4684 and on Schedule D capital gains and losses. And if you already filed your return for the preceding year and you elect to claim a disaster casualty loss on a previous year’s return, you would file a 1040-X.

And, David, now is the time for another polling question, so take it away.

Of course, here’s our next polling question. Documenting casualty losses can include: A, photographs of damaged property; B, videos of damaged property; C, written appraisals of damaged property; or D, all of the above. Take a moment to click the radio button that answers the question. If you did not receive the polling question, please enter only the letters A, B, C, or D. That corresponds with your response in the Ask Question text box to timestamp your response. I’ll give you a few more seconds to make your selection or to submit your answer in the Ask Question feature.

Okay, we’re going to stop the polling now, and let’s share the correct answer on the next slide. And the correct response is D, all of the above. And let’s see how many of you answered correctly, 99%. That’s just almost 100%. Very well done. Jeff, it seems like the audience is still with us, so let’s transition to you.

Thanks, David. All right. So, we’re going to switch topics again. Now, there are some disaster-related payments that are not included in gross income. Right now, we’re going to talk about disaster relief payments. Qualified disaster relief payments are not included in gross income to the extent any payment is not compensated for by insurance or otherwise. So, if a taxpayer receives a qualified disaster relief payment and does not receive any insurance or other reimbursement for the disaster-related expense, the relief payment is not included in gross income.

Now, there are three different types of qualified disaster relief payments. The first type of disaster relief payments are payments to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, also known as a federally declared disaster. These types of payments are excluded from gross income. So, for example, if a taxpayer’s home is completely destroyed by a tornado and they receive funds which don’t include insurance proceeds to temporarily put them up in a hotel, those payments are not included in income.

The second type of disaster relief payments are payments incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster. So, assuming that a taxpayer does not receive any insurance or other reimbursement for these expenses, the payments would be excluded from gross income. For example, if a taxpayer did not have flood insurance for their home, but received funds to help replace the carpet and drywall of their home, those funds would be excluded from income.

Now, finally, disaster relief payments or grants paid by a federal, state, or local government or agency related to a federal disaster, which are based on need, are excluded from gross income. Two other items not shown on the screen are payments made by charitable organizations or employers. These payments can also be excluded from gross income. And you can see Revenue Ruling 2003-12 for more details.

Now, it’s important to note that no double benefit related to qualified disaster relief payments is allowed. This means that no deduction or credit will be allowed to the extent of the amount any qualified disaster relief payments are excluded from income. So, remember, excluding qualified disaster relief payments from income applies only to individuals, and these exclusions from income do not apply to businesses.

All right. So, now, we’re going to talk about qualified wildfire relief payments. Qualified wildlife relief payments are also excluded from income. Now, the term qualified wildfire disaster means any federally declared disaster declared after September 31, 2014 as a result of any forest or range fire. Qualified wildfire relief payments are any amount paid to or for the benefit of an individual as compensation for expenses or losses incurred as a result of a qualified wildfire disaster.

But only to the extent any expenses or loss compensated by such payment is not compensated by insurance or otherwise. Also, there is no double benefit. So, no deduction or credit is allowed for any expenses paid for by excluded qualified wildfire relief payments. Excluding qualified wildfire relief payments applies to payments received during taxable years beginning December 31, 2019, and before January 1, 2026.

Okay, so we’ve discussed the tax treatment of qualified disaster relief payments. Now, we’re going to discuss qualified disaster mitigation payments. I know relief payments and mitigation payments sound like they’re the same thing, but they are different. Qualified disaster mitigation payments are any amount which is paid pursuant to the Robert T. Stafford Disaster Relief Act or the National Flood Insurance Act to or for the benefit of the owner of any property for hazard mitigation.

Let’s look at some examples of qualified disaster mitigation payments to highlight what those payments are, what they’re for, and how they’re treated for tax purposes. The qualified disaster mitigation payments are payments made by FEMA to taxpayers under FEMA disaster mitigation programs. Those include the Flood Mitigation Assistance Program, which provides funding to protect life and property from repetitive future natural disasters; and the Hazard Mitigation Grant Program, which provides post-disaster funding to protect life and property from future natural disasters.

These are payments that individual property owners receive from FEMA to reduce the risk of future damage to their property. Qualified disaster mitigation payments are excluded from gross income. In addition, qualified disaster mitigation payments do not increase the basis in the property for expenditures made with respect to those payments. So, no deduction or credit is allowed related to qualified disaster mitigation payments. However, just like qualified disaster relief payments, no double benefit related to qualified disaster mitigation payments are allowed.

On this slide, we’ll discuss the tax treatment of gains on unscheduled personal property. No gain is recognized on any insurance proceeds received for unscheduled personal property that was part of the contents of a main home. An unscheduled property insurance payment is the lump sum insurance reimbursement received for contents in a home or apartment that was involved in a disaster.

Usually, an insurance company will list in the policy what types of property must be scheduled, such as high-value jewelry or high-end computer systems. This income exclusion applies to both homeowners and renters who receive insurance proceeds for damaged or destroyed property in a home or apartment as a result of a federally declared disaster. So, taxpayers who receive insurance payments or reimbursements for unscheduled property, no gain is recognized on that property. Some examples of unscheduled property include clothes, bedding, small electronics, sports equipment, and jewelry of minimal value.

So, let’s say, the insurance company gives you $500 for a TV that may actually have been worth $300. No gain is recognized on the TV. That’s what this provision means. Also, payments for temporary living expenses received by an insured individual directly from FEMA, and that’s the key, the payments for temporary living expenses have to be directly from FEMA, are also excluded from gross income.

Now, David, can we do one more polling question?

Sure, Jeff. Audience, this will be our final polling question. Are disaster mitigation payments taxable and do they impact bases? Select A for yes; or B for no. Take a moment now, click the radio button that answers the question. If you did not receive the polling question, please answer only the letters A or B in your Ask Question text box. Remember, your response is timestamped. You need to have answered at least four polling questions and participate in a live broadcast from the official start time for at least 100 minutes to earn two IRS CE credits. The polling example we did at the beginning of this presentation will count towards this requirement. A few more seconds to make your selection or to submit your answer in that Ask Question feature.

Okay, we’re going to stop the polling now and let’s share the correct answer on the next slide. The correct answer is B, no. How many of you responded correctly? 88% and that’s an excellent response rate. Thank you for responding and participating with our polling questions.

Now, back to you, Jeff.

Thanks, David. So, just a few things I’d like to touch on at the end here that are related disaster publications. So, the IRS provides resources for taxpayers and for tax professionals. So, I encourage everyone to take a look at these related disaster publications and, of course, Form 4684 and its separate instructions as well. The IRS website also has a lot of information related to disasters. IRS disaster relief declarations are also published in IRS e-News products, which are listed on the slide.

And, we also have information related to other government agency disaster information. You can check the FEMA website, which is FEMA.gov, to see if a disaster was in your county or parish. The maps are extremely helpful on the FEMA website for that purpose.

Now, we know there’s a great deal of complexity associated with disaster relief, but I hope you found this material helpful in dealing with some of those intricacies. And while taxes may not be the first concern of survivors of casualty steps and disasters, eventually they will need to know the resources available to them. This slide lists some other government agencies where you can find disaster information.

So, I hope that today’s presentation has helped to shed some light on this area. I want to thank everyone again for attending, and I want to thank my co-presenter, Chris, as well, and also for David; David for moderating. I’ll hand things over to David now for the Q&A portion.

Hello, again, audience, we’ve made it to the fun part. This is our live question-and-answer period, and I’ll be moderating this session. But before we start, I want to thank everyone for attending and staying engaged during today’s presentation, Dealing with Disasters from an Individual Tax Perspective. Earlier I mentioned, we want to know what questions you have for our presenters. Here’s your opportunity. If you haven’t input your questions, there is still time. Go ahead and click on the dropdown arrow next to the Ask Question field. Type in your question and click Send. Remember, do not enter any sensitive taxpayer-specific information.

For our question-and-answer portion, we’re joined by Michael Mudroncik. Mike works as a Senior Tax Analyst with the IRS’s stakeholder liaison organization. Prior to joining stakeholder liaison, Mike worked as a revenue agent in Small Business/Self-Employed exam division, out of the IRS office in Downers Grove, Illinois. Mike holds Degrees in Business Administration and Accounting from Indiana University and an MBA from DePaul University.

One thing before we start, we may not have time to answer all the questions submitted, but we will answer as many as time allows. So let’s get started so we can get to as many questions as possible.

We do have a question here, I see. First one, does disaster relief apply to me if my tax preparer is in a disaster area, but I’m not?

Well, thanks, David, for moderating and thank you to everyone for being here today with us, and I know you’re extremely busy. I am Mike Mudroncik and to answer that question, disaster relief applies to the clients of tax preparers who are unable to file returns or make payments on behalf of the client, because of a federally declared disaster.

If you are a taxpayer outside of the disaster area, you may qualify for relief if your preparer is in a federally declared disaster area and the preparer is unable to file or pay on your behalf. So, to get the postponement for filing or payment, you must call the IRS Disaster Hotline. We’ve given that out, but I’ll give it to you again. It’s 866-562-5227, very important number, 866-562-5227. When you call and you talk to the IRS representative, you’ll need to explain your necessary records are located in the covered disaster area. You’ll also need to provide the FEMA disaster number of the area, where your tax preparer is located.

Dave, any more questions?

Thanks, Mike. Yeah, let me take a look here. And it does look like we do. I own an interest in a partnership, or I’m a shareholder in an S corporation located in the federally declared disaster area. However, I do not live in the disaster area myself. I rely on information like the Schedule K-1 from the partnership or S corporation to file my tax return. Do I qualify as an affected taxpayer for purposes of receiving filing and payment relief?

Well, the answer is yes. If the affected partnership or an S corporation can’t provide you the records necessary to file your return, then you are an affected taxpayer. Your filing and payment deadlines are postponed until the end of the postponement period, just like the affected partnership or S corporation. So, to get the postponement in this scenario for filing or payment, again, you must, like in the previous question, call the IRS Disaster Hotline, again, that’s 866-562-5227. Explain your necessary records are located in a covered disaster area and provide the FEMA disaster number of the county, where the affected partnership or S corporation is located.

Now, for more information, you can see Treasury Regulation 301.7508A-1 and Revenue Procedure 2018-58 for a list of the taxpayer acts that may be postponed in response to a federally declared disaster.

Okay. Thanks, Mike. It looks like we have another one coming in here. If I sustain a loss that is a trivial to a federally declared disaster, may I elect to deduct that disaster loss in the preceding tax year?

Well, generally, you may elect to deduct a disaster loss in the year you sustain the loss. We talked about that quite a bit in the presentation. This is known as the disaster year that year you sustain the loss. So, the disaster year is generally the year in which the disaster occurred, but it may be a year after the disaster occurred. So if, for example, you have a claim for reimbursement with a reasonable prospect of recovery, then you have not sustained a loss until you know with reasonable certainty whether you will receive the reimbursement. We did talk about that during the presentation.

Now, if you have a loss attributable to a federally declared disaster occurring in an area identified by FEMA as qualifying for public or individual assistance or both, you may elect to deduct that loss on your return or amended return for the tax year immediately preceding the disaster year. If you make this election, the loss is treated as having occurred in the preceding year. The election may be made on Form 4684 in Section D specifically. This election should be attached to a return or amended return for the preceding year.

With respect to the due date for the election, you must make the election to claim your disaster loss in the preceding year on or before the date that is 6 months after the regular due date for filing your original return without extensions for the disaster year. Now, you can see Publication 547 for more information. A list of areas warranting public or individual assistance, or both, as we’ve mentioned during the presentation, is available at the FEMA website, FEMA.gov/disasters.

And remember, for tax years 2018 through 2025, if you are an individual, casualty or theft losses of personal use property are deductible only if the loss is attributable to a federally declared disaster.

David, any more questions?

Yeah. Thanks, Mike. Here’s another one. A taxpayer affected by a disaster timely filed a federal income tax return for the taxable year the disaster occurred, and claimed a casualty loss deduction. The taxpayer received reimbursements for the loss in a subsequent year. May a taxpayer file an amended return for the year in which the taxpayer claimed a casualty loss deduction to reduce the loss by the amount of the reimbursement that they received?

Now, if the taxpayer properly claimed a casualty loss deduction on an original return and in a later year receives reimbursement for the loss, the taxpayer does not repeat, does not amend the original return. Instead the taxpayer should report the amount of the reimbursement in gross income in the tax year in which the reimbursements were received to the extent that casualty loss deduction reduced their income tax in the tax year that the taxpayer reported the casualty loss deduction.

Now, in Publication 547, you can see a section that’s entitled, Insurance and Other Reimbursements to give you more details about this particular subject. In computing the tax benefit, we advise you to review IRS Publication 525 which is the taxable and non-taxable income publication.

David, any more questions?

Yeah. Thanks, Mike. It looks like we do have another one here. A taxpayer whose individual income tax return either a 1040 or a 1040-SR is due to be filed on or before April 15th of the year and they timely file for an extension of time to file the return under Section 6081, therefore extending the due date to October 15th. If the county in which the taxpayer resides is a declared federally declared disaster area and pursuant to Section 7508A of the Internal Revenue Code, IRS postponed filing and payment obligations for the period September 1st through December 31st, when does the taxpayer then file their 1040 or 1040-SR?

Okay. Well, the taxpayer must file their individual income tax return by the later, again, the later of the end of the postponement period or the extended due date. So here, the postponement period attached to the disaster declaration ends on December 31st, which is later than the extended due date, which is October 15th. So, the taxpayer’s individual income tax return in this scenario with the disaster must be filed by December 31st.

Hope that answers the question. David, is there any more?

Yeah, makes sense. Here’s another one. Is there any interest relief for taxpayers who have balances due that arise during the disaster relief period for prior year returns?

Well, that’s a definite no. The IRS is not going to abate interest on balances due on liabilities for prior years. However, the IRS will consider waiving late payment penalties when the reason for the late payment is due to reasonable cause related to the disaster, so we’ve been talking about disasters all day. So, disasters are certainly a reasonable cause why the payment may not have been made.

David, any other questions?

Okay. Yeah, here’s one about mitigation payments. Are mitigation payments under Code Section 139 tax-free?

Well, going on from what we discussed during the presentation, remember, the qualified disaster mitigation payments are excluded from recipients’ income. Now, such payments are amounts paid under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act to or for the benefit of the owner of any property for hazard mitigation. So, there is no resulting increase in the basis or the adjusted basis of the property for which the payments are made.

Now, also, no person for whose benefit a qualified disaster mitigation payment is made can take a deduction or a credit due to an expenditure for which exclusion for a payment is granted. The exclusion does not apply to amounts received for the sale or disposition of property.

David, any other questions?

Okay, Mike, thanks. Yeah, that one’s good. The next one asks, do you have to subtract FEMA payments in arriving at the calculation for your net casualty loss?

Okay, I’m going to refer back to Publication 547 again, which again is that Casualty, Disasters, and Thefts publication that you can get on the IRS website. And according to that publication in the section entitled, Types of Reimbursements, Food, Medical Supplies, and other forms of assistance that you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property. In calculating your casualty loss, if the payment is for replacement of lost or destroyed property then you would subtract the amount in figuring your casualty loss.

I hope that’s clear. David, any other questions?

Yeah, thank you. We’ve got one here. How do reimbursements from state funds to compensate for property damage that are received in a subsequent year affect a homeowner’s casualty loss and basis computations?

Well, if a taxpayer properly claimed a casualty loss deduction and in a later year receives reimbursement for the loss, the taxpayer reports the amount of the reimbursement and gross income in the tax year it is received to the extent the casualty loss deduction reduced the taxpayer’s income tax in the year in which the taxpayer reported the casualty loss deduction.

Now, if the subsequent year reimbursement exceeds the amount of the casualty loss deduction, the taxpayer reduces basis in the property by the amount of such excess. In addition, the taxpayer includes such excess in income as gain to the extent it exceeds the remaining basis in the property, unless such gain can be excluded from income or its recognition can be deferred.

Now, I’m going to refer again to Publication 547. There is a section in there entitled, Insurance and Other Reimbursements, where you can get more information on this specific question and topic.

David, any more questions?

Thanks, Mike. Yeah. Here’s one, the decrease in fair market value of the property for which I’m taking a casualty loss is the difference between the property is value immediately before and immediately after the casualty. Well, what constitutes immediately after?

Great question. So to compute the amount deductible as a casualty loss, again, the taxpayers need to determine the difference between the fair market value immediately before and immediately after the casualty and the adjusted basis of the property, which is usually the cost of the property and any improvements. We talked about that towards the end of the presentation. Now, taxpayers may deduct the smaller of these two amounts minus the insurance or any other form of compensation received or expected to be received.

Okay, one method of determining the decrease in fair market value is an appraisal. An appraisal must reflect only the physical damage to the property and not a general decline in the property’s fair market value. Taxpayers may also use the cost to repair or clean up the property, what’s known as the cost of repairs method, to determine the decrease in fair market value caused by the casualty. Now, in Publication 547, there’s a section entitled, Decrease in Fair Market Value and you get additional information again in Publication 547.

Now, although we use the term immediately after when referring to post-casualty value, we recognize the taxpayer’s ability to determine the decrease in fair market values of their properties as a result of a disaster may be restricted by lack of access to the properties. So, for example, if a taxpayer’s property flooded and access to the property was restricted until all the water was removed from the area, the decrease in fair market value would take into account any additional damage sustained to the property as a result of the delays due to legal and physical restrictions to the taxpayers’ access to their property. I want to make that very clear.

And, remember, again, for tax years 2018 through 2025 if you’re an individual, casualty or theft losses of personal use property are deductible only if the loss is attributable to a federally declared disaster. Just want to make sure we keep repeating that, so we’re very clear.

David, any other questions?

Yeah, we may have time for only one more. If a taxpayer owns several parcels of real estate that are damaged by a federally declared disaster, may the taxpayer choose to claim a casualty loss on one property in the preceding year and a casualty loss on other property in the disaster year?

Well, the answer to that is no. If a taxpayer chooses to deduct a disaster loss sustained in the disaster year on an original or in an amended return for the preceding year, the taxpayer must report all, repeat all related losses that qualify for the election on the preceding year return. That information, that law, that regulation can be found at Regulation 1.165-11(c). So that is the answer to that question.

David, thanks a lot. I’ll hand it back to you.

Thanks. Well, audience, it looks like that’s all the time we have for questions. I do want to thank, Mike, for answering your questions today and sharing his knowledge and expertise. Now, Chris is going to share some of the key points from today’s webinar.

Absolutely. It would be my pleasure, David. Audience, here are some key points and takeaways to retain from today’s presentation. We got a lot of great information. As you can see on your screen, when a federal disaster is declared and FEMA provides individual assistance or individual and public assistance, the IRS will generally postpone filing and payment due dates for certain specific tax forms and tax payments. These postpone filing and payment due dates are listed in IRS disaster press releases, which can be found on the IRS website.

The next key point is computing a casualty loss. You need to know that the loss is the lesser of, number one, the decrease in fair market value as a result of the casualty and adjusted basis before the casualty. Subtract any insurance or other reimbursements received from the smaller of the above two points on your screen.

And finally, folks, to claim a casualty loss, remember the loss must be attributable to a federally declared disaster. Taxpayers must first reduce each casualty or theft loss by $100, and taxpayers must then reduce their total casualty losses attributable to a federally declared disaster by 10% of their adjusted gross income.

David, those are the key takeaways that we have today.

Thanks, Chris. Not only for those key points in the review, but an excellent presentation along with Jeff. Audience, we have additional webinars planned before the end of the year, so to register for future webinars, please visit IRS.gov. and in the search box put webinars and select webinars for tax practitioners or webinars for small businesses. And when appropriate, we will offer certificates and CE credit for upcoming webinars. We invite you to visit IRS YouTube page at www.youtube.com/IRSvideos. And, there, you can view available recorded versions of our webinars and other key video messaging once posted. Again, continuing education credits or certificates completion are not offered if you view an archived version of any of our webinars.

Again, another big thank you and virtual round of applause to our presenters, Christopher Green and Jeffrey Latessa for a great webinar along with our subject matter expert, Mike Mudroncik for an excellent webinar. I want to thank you our attendees for attending today’s webinar, Dealing with Disasters from an Individual Tax Perspective.

Remember, if you attended today’s webinar for at least 100 minutes after the start time and answered at least four polling questions during the live broadcast, you will receive a certificate of completion for two IRS CE credits or if you obtained 50 minutes of the official start time and answered at least three polling questions during the live broadcast, you will receive a certificate of completion for one IRS CE credit. Remember, the polling question example does count towards the minimum question response requirement.

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