Extra help for 2008 and 2009 claims
Victims in presidentially declared disaster areas -- regions hit especially hard by hurricanes, tornadoes, floods, earthquakes or other calamities -- get special consideration. Tax law previously made it easier for these folks to get some help from the IRS more quickly. A new law enacted last fall enhanced that relief.In these cases, taxpayers typically can claim their losses in the tax year the disaster struck or they can claim it as if it happened the year before. Many taxpayers find that by filing an amended return and claiming the loss for the previous tax year, for example, claiming 2008 wildfire losses on an amended 2007 return, they get a bigger refund. This often is the case for individuals who didn't itemize deductions the prior year.
Because there were so many major disasters last year, lawmakers decided to extend tax help. For the 2008 and 2009 tax years, losses in federally declared disaster areas get even more favorable treatment. Losses in these cases are not limited by the 10 percent of gross income threshold.
Even better for many filers, you don't have to itemize to claim them. You simply add the net disaster loss amount to your standard deduction. Of course, finding out just how much you add to your standard claim amount will require you to fill out Form 4684 and then complete a worksheet found in the Form 1040 instruction book.
Also, taxpayers in a presidentially declared disaster area in 2008 and 2009 who receive grants from state programs, charitable organizations or employers to cover certain disaster-related costs get another break. They do not have to include these grants in gross income.
There is, however, one relatively small limit for 2009 loss claims in a presidentially declared disaster area. For that tax year, only losses in excess of $500, rather than $100, get the more favorable tax treatment.
In addition, there are even more special tax rules affecting individuals who sustained losses from the tornadoes and floods that struck the Midwest last year. More information on these situations is available in IRS Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.
Making your claim
The deadline for choosing the option of which tax year to claim disaster losses usually is the due date of your current year return. This means you can file the amended return for the previous year by the filing deadline for the year in which the disaster actually occurred.For example, if in 2008 you suffered a casualty loss due to a presidentially declared disaster, you can amend your 2007 return up until the current April 15 filing due date to claim the losses in that prior tax year.
FEMA maintains a list of current and previous year presidential disasters to help you confirm that you're eligible for special tax treatment.
Yes, the paperwork is a hassle. But the IRS provides additional details in the previously mentioned Publication 4492-B, as well as in Publication 547, Casualties, Disasters and Thefts. The agency also has a workbook to help you track your losses, as well as Publication 2194, Disaster Losses Kit for Individuals, which consolidates the tax-related disaster information you'll need.
If you're the victim of a major disaster, claiming your losses on your tax return could help rebuild your property as well as your bank account.