Come Hell or High Water – New Disaster Tax Relief Provisions

Courtesy of Wikimedia Commons

By now, most Americans have heard of the devastating wildfires that have destroyed property and claimed lives in California.  What many are not aware of is the fact that President Trump recently signed into law the Bipartisan Budget Act of 2018, which among other things was designed to help Californians hardest hit by fire damage.  Normally a personal casualty loss incurred by wildfire is an itemized deduction.  Under the new Act, qualified losses are now deductible as well.

What’s even better is that the provisions of this Act and the Disaster Tax Relief and Airport and Airway Extension Act of 2017 may also help homeowners and business owners in the Florida/Georgia area get some relief from the devastation caused by Hurricanes Irma and Matthew.

In years past, the rules were such that if you made $150,000, your hurricane losses had to total over $15,100 for you to make a claim.  Fortunately, that has recently changed.  If you live in an area that has been declared a disaster zone, you can now declare whatever you lose minus $500 as an itemized deduction. However, this only applies to individuals, not corporations.    This provision not only applies to your home but your property as well.

Let’s say your dock was damaged or destroyed by Irma.  Provided the damage was not covered by your insurance carrier, you can deduct the cost to repair or replace the dock minus $500.  Bear in mind; you were required to have paid for the repair out of pocket for this to apply.  You are not able to take a deduction based on an estimate given to you by a contractor.  (Not even if the estimate was provided by FEMA.)

Courtesy of Wikipedia

The same rule can also be applied to the cost of removing trees that were downed on your property.  If you wound up paying $10,000 to have damaged trees removed and were not reimbursed by your insurance carrier, you can post a $9,500 deduction from your income taxes.  If, on the other hand, you were reimbursed by the insurance company or by FEMA for the loss, you do not qualify for a deduction.

That’s the bad news.  The good news is, if you incurred a non-reimbursed loss after last 2016’s Hurricane Matthew and your home was in the area declared a disaster zone, you may still be entitled to a deduction this year.  When it comes to making up for qualified losses, time is on your side.

The important point is that your home had to be in the area declared to be a federal disaster zone.  When it came to 2017’s Hurricane Irma, the zone encompassed all of Florida.  For Hurricane Matthew, the disaster zone only included the east coast of Florida.  If you are unsure if your county was listed as a disaster zone in 2016, you can find out by going to either of the following links:

https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-matthew-in-florida

https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-matthew-in-georgia

Whether the damage caused to your home, your dock, your car, or your second home was caused by either Irma or Matthew, you may still be entitled to a deduction.  The exception is if your second home is a rental property.  In that case, you will, unfortunately, be forced to eat the loss.  If you are unsure of whether a loss is covered under the disaster relief provisions, contact your CPA or call me at (904) 731-2221.

Back in Business

When it comes to businesses that were affected by either Irma or Matthew, there are some losses you can deduct as an operating expense.  For instance, businesses in the San Marco area of Jacksonville were decimated by flooding that not only resulted in property loss but the loss of income incurred from the 6-months it took to get these businesses open for business again. Some of these losses are deductible.

Not only is a loss of revenue an issue for many businesses that were closed down due to Hurricane Irma or Matthew, but some businesses also took a hit due to their payroll.  If you paid your employees while your business was closed down due to hurricane damage, you might be entitled to a credit on your tax return.  This ruling is so new that many business owners are not even aware it exists. The only exception is when it comes to the owner’s wages, which is not included in the tax credit.

When is FEMA NOT Your Friend?

Courtesy of FEMA.gov

If you’re a business owner, don’t expect FEMA to charge to the rescue.  For local businesses that were forced to shut down for months on end, FEMA provided no federal assistance of any kind.  I had one client who was renting space that was decimated by flood waters caused by Hurricane Irma. When it comes to compensating residents hardest hit by either hurricane, FEMA support could be a boon for homeowners.  But when it came to business owners, they were left out in the cold by FEMA.

While the past couple of years have spelled disaster born of water and wind in the Sunshine State, Florida is no stranger to wildfire. In 1998, 4,899 wildfires burned more than 500,000 acres and claimed 342 homes in Florida.  If history were to repeat itself and wildfire or hurricane should visit our area again, it’s nice to know that Floridians can expect some tax relief come hell or high water.

Article content provided by Paul S. Hamann & Jack Salewski, CPA, CGMA. If you would like help with these kinds of accounting and tax questions, call Ben Kinsey, CPA of Small Business Group at 904 731-2221. He works with closely held corporations in the Northeast Florida region.  Contact Small Business Group if you would like to know more about strategies for your business. To make an appointment click here.http://www.smallbg.com/appointment.htm