President Trump has declared certain areas affected by Harvey and Irma as “Federally Declared Disaster Areas.” Puerto Rico, St John, St Thomas, certain counties in Florida and Texas are covered under the disaster area. If you have property in an affected area and need help navigating what to do with FEMA to register for possible government assistance, please let us know and we will either send you the link for registration or assist you in completing any necessary paperwork.
The IRS will also be sending information as it relates to due dates for tax returns for those with property in the affected area. Guidance is out for Harvey and we should receive guidance for the IRMA disaster in a couple of days. I believe it is safe to say that those with businesses or individual returns due September 15 or October 15 will have additional time to complete and file those returns.
For Harvey and Irma related partnership and corporate returns on a valid extension with an original due date of September 15, 2017, the new extended date is January 31, 2018. The Texas disaster area includes the following counties in Texas: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, Whartan, Colorado, Fayette, Hardin, Jasper, Jefferson, Montgomery, Newton, Orange, Sabine, San Jacinto, Waller, Austin, Batrop, DeWitt, Gonzales, Karnes, Lavaca, Lee, Polk, Tyler and Walker Counties. For Florida, as of September 12, the counties included are: Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami- Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns Counties.
In addition to delayed filing, there are also other choices for deducting any casualty loss. Please let us know if you have property in any of the affected areas and we will discuss those options in more detail. Some possible options include: (a) Your choice to deduct the deductible loss (loss not covered by insurance) in either the current year or the prior year (2016) and (b) waiving fees and expedite requests for copies of previously filed tax returns.
As far as your potential casualty loss, as a general rule, you will only have a loss to the extent that you are either under insured or not insured. The following is an excerpt from the IRS Publication on disaster losses. As you can see, the rules are complicated and we are here to help.
FROM IRS PUBLICATION 547
Amount of loss. Figure the amount of your loss using the following steps.
1. Determine your adjusted basis in the property before the casualty or theft.
2. Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft.
3. From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.
For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss.
Gain from reimbursement. If your reimbursement is more than your adjusted basis in the property, you have a gain. This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. See Figuring a Gain, later.
Business or income-producing property. If you have business or income-producing property, such as rental property, and it is stolen or completely destroyed, the decrease in FMV isn't considered. Your loss is figured as follows:
Your adjusted basis in the property
- Any salvage value
- Any insurance or other reimbursement you receive or expect to receive
Loss of inventory. There are two ways you can deduct a casualty or theft loss of inventory, including items you hold for sale to customers.
One way is to deduct the loss through the increase in the cost of goods sold by properly reporting your opening and closing inventories. Don't claim this loss again as a casualty or theft loss. If you take the loss through the increase in the cost of goods sold, include any insurance or other reimbursement you receive for the loss in gross income.
The other way is to deduct the loss separately. If you deduct it separately, eliminate the affected inventory items from the cost of goods sold by making a downward adjustment to opening inventory or purchases. Reduce the loss by the reimbursement you received. Don't include the reimbursement in gross income. If you don't receive the reimbursement by the end of the year, you may not claim a loss to the extent you have a reasonable prospect of recovery.
Leased property. If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive.
Separate computations. Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Then combine the losses to determine the total loss from that casualty or theft.
Exception for personal-use real property. In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Figure the loss using the smaller of the following.
- The decrease in FMV of the entire property.
- The adjusted basis of the entire property.
See Real property under Figuring the Deduction, later.
Decrease in Fair Market Value
Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.
The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft.
Figuring Decrease in FMV: Items to Consider
To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. However, other measures also can be used to establish certain decreases.
See Appraisal and Cost of cleaning up or making repairs, next.
Appraisal. An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterwards should be made by a competent appraiser. The appraiser must recognize the effects of any general market decline that may occur along with the casualty. This information is needed to limit any deduction to the actual loss resulting from damage to the property.
Several factors are important in evaluating the accuracy of an appraisal, including the following.
The appraiser's familiarity with your property before and after the casualty or theft.
The appraiser's knowledge of sales of comparable property in the area.
The appraiser's knowledge of conditions in the area of the casualty.
The appraiser's method of appraisal.
You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. For more information on disasters, see Disaster Area Losses, later.
Cost of cleaning up or making repairs. The cost of repairing damaged property isn't part of a casualty loss. Neither is the cost of cleaning up after a casualty. But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions.
The repairs are actually made.
The repairs are necessary to bring the property back to its condition before the casualty.
The amount spent for repairs isn't excessive.
The repairs take care of the damage only.
The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.
Landscaping. The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. You may be able to measure your loss by what you spend on the following.
Removing destroyed or damaged trees and shrubs, minus any salvage you receive.
Pruning and other measures taken to preserve damaged trees and shrubs.
Replanting necessary to restore the property to its approximate value before the casualty.
Car value. Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. You can use the books' retail values and modify them by factors such as the mileage and condition of your car to figure its value. The prices aren't official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. If your car isn't listed in the books, determine its value from other sources. A dealer's offer for your car as a trade-in on a new car isn't usually a measure of its true value.