As a result of the devastation wrought by Hurricanes Harvey and Irma, the following counties have been declared as major disaster areas, all of which are entitled to federal tax filing and payment relief:
In Texas: Aransas, Austin, Bastrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller and Wharton Counties.
In Florida: Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns Counties.
Taxpayers whose principal residence or a business’ principal place of business was located in one of the counties declared as a major disaster area are entitled to certain federal tax relief for the 2016 tax year. This federal tax relief includes: (a) the suspension of certain deadlines to file tax returns; (b) the suspension of certain deadlines to pay taxes; and (c) the ability to claim casualty losses incurred as a result of Hurricanes Harvey and Irma.
I. Tax Return Filing Relief
a. Eligible Taxpayers
Individuals and businesses that were located in the specified Texas counties are entitled to relief with respect to certain federal tax returns that had original or extended filing due date on or after August 23, 2017. Similarly, individuals and businesses that were located in the specified Florida counties are entitled to relief with respect to certain federal tax returns that had original or extended filing due date on or after September 4, 2017.
b. Eligible Returns
Individuals and businesses that were located in the specified counties are not required to file certain tax returns until January 31, 2018. The tax returns that qualify for the relief include:
• individual, corporate, and estate and trust income tax returns;
• partnership and S corporation returns;
• estate, gift, and generation-skipping transfer tax returns; and
• employment and certain excise tax returns.
However, the relief specifically does not apply to certain information returns such as W-2, 1098, 1099 series, Forms 1042-S and 8027.
II. Tax Payment Relief
Eligible taxpayers are not required to pay certain federal taxes and are not required to remit estimated tax payments until January 31, 2018.
a. Eligible Taxpayers
The postponed due date applies to federal tax payments due on or after August 23, 2017 (in the case of individuals and businesses located in the Texas counties) or September 4, 2017 (in the case of individuals and businesses located in the Florida counties).
b. Eligible Taxes
Employment and excise tax deposits are not eligible for the relief. However, the IRS will abate penalties for failure to make employment or excise tax deposits timely.
For the affected Texas counties, deposits are timely if the deposits were due on or after August 23, 2017 and were made by September 7, 2017. For the affected Florida counties, deposits are timely if the deposits were due on or after September 4, 2017 and are made by September 19, 2017.
To qualify for this tax return filing and payment relief, taxpayers should make notations of the hurricane that affected their residence or business. Taxpayers can make the notion by writing “Texas, Hurricane Harvey” or “Florida, Hurricane Irma” on the top of any return or form that the taxpayer files with the IRS.
III. Casualty Loss Relief
Certain taxpayers may elect to deduct casualty losses that they incurred as a result of the storms and flooding on their 2016 tax return. This relief could allow taxpayers to obtain a tax refund for 2016 as a result of the loss instead of waiting until the 2017 tax return.
a. Amending the Tax Return
To claim casualty losses on their 2016 returns, taxpayers should file an original or amended tax return for the 2016 tax year claiming the casualty loss. Taxpayers should make notations of the hurricane that affected their residence or business, preferably on the top of the tax return. Taxpayers should also include a statement with the tax return. The statement should: (a) declare that the taxpayer is electing to claim the casualty loss in 2016; (b) state the date on which the damage was incurred; and (c) state the location of the property that was damaged.
b. Amount of the Casualty Loss
The amount of a casualty loss is generally the lesser of the loss in fair market value of the property as a result of the casualty or the amount that the taxpayer paid for the property.
The amount of the casualty loss is limited to the extent it is not reimbursed by insurance. Thus, if the taxpayer has insured the property, the taxpayer must timely file an insurance claim for the damage.
Further, taxpayers may claim a casualty loss as an itemized deduction and reduce taxable income only to the extent the casualty loss (after reduction for any insurance reimbursement) exceeds the greater of 10% of the taxpayer’s adjusted gross income for the year claimed or $100.
Because a casualty loss deduction is generally limited to the amount in excess of 10% of the taxpayer’s adjusted gross income, taxpayers should consult their tax advisor and compare the adjusted gross income for 2016 to their expected adjusted gross income for 2017 in order to determine the year in which it would be most advantageous to claim the casualty loss. For example, if a taxpayer plans to take a distribution or withdrawal in 2017 from a 401(k) or a traditional IRA, this would increase the taxpayer’s adjusted gross income for 2017. Therefore the taxpayer may be entitled to claim a larger casualty loss deduction on the 2016 tax return rather than claiming the casualty loss on the 2017 tax return.
The federal tax relief suspends the deadlines to file tax returns, pay taxes, and provides the ability to claim casualty losses incurred by Hurricanes Harvey and Irma on either 2016 or 2017 tax returns for all federally declared disaster areas. To the extent additional relief is necessary, such as the broad relief that was provided after Hurricanes Katrina and Rita, the additional relief must be approved by Congress and signed into law by the President.