Hurricane Ida victims may benefit from an IRS deduction; CPA explains the process
Insurance deductibles are forcing some people to foot full cost of repairs
NEW ORLEANS (WVUE) - Hurricane Ida left catastrophic damage behind in southeast Louisiana and many property owners say they do not like their insurance company’s response. But the IRS may be a way for some hurricane victims to get some financial relief.
Gerard Malatesta is a property owner.
“Basically, the insurance companies aren’t paying out any money,” said Malatesta.
Hurricane deductibles are higher since Hurricane Katrina swamped parts of Louisiana in 2005 and for some Hurricane Ida victims, that means they will get nothing from their insurer because their damage does not exceed the deductible, leaving them to foot the costs of repairs on their own.
That is where the IRS comes in. Income tax filers who have hurricane damage can take advantage of a special deduction.
Richard Tullier is a veteran CPA and Senior Manager with Wegmann Dazet & Company.
“In general, you get what’s called a casualty loss and that’s get taken as an itemized deduction,” said Tullier.
But he also noted that tax law changes in 2017 increased the standard federal deduction to $12,000 for individuals and $24,000 for couples and that may affect whether it is beneficial for a taxpayer to itemize and deduct the storm damage.
“So, let’s say you have a casualty loss, and you calculate you lost about $10,000 and insurance isn’t covering, unfortunately, you don’t get to use it because you don’t have enough other deductions to override your standard deduction. But there’s hope, in the past five years, there have been allowances by the IRS to allow people to claim these losses without itemizing deductions,” Tullier stated.
He explained how to figure out losses that would be included on IRS Form 4684.
“Usually whatever your insurance company tells you is your damages, that’s a good starting point. Unfortunately, right now, some of those estimates are a little low, so you’re allowed to go get, say a contractor’s estimate, and compare that to whatever your insurance company provides, and that difference becomes your deduction. There’s a calculation where you take that difference, and you basically take 90% of whatever that difference is and that’s your deduction for tax purposes,” said Tullier.
And Tullier was asked what documentation income tax filers should have related to Hurricane Ida damage.
“So, to claim the loss you don’t need to provide anything other than you signing the return and that form but if they ever came back, the rule is if it’s under say $5,000 the IRS kind of trusts you basically,” he said.
But there could be more scrutiny for amounts over $5,000.
“When it gets over $5,000, they really want to see something either showing repairs actually made or showing the contractor’s estimate that these damages did occur,” said Tullier.
Tullier said it could be a couple of months before the IRS issues guidance on whether it will allow IDA victims to claim property losses without itemizing deductions on their tax returns.
“Normally they make it after the year-end, so unfortunately we’re probably not going to get clear guidance until sometime in January,” he said.
Malatesta thinks the casualty deduction could be a big help to a lot of people. “It would help a lot of people because a lot of people are in trouble right now, coming off of COVID into this, yeah, not good,” said Malatesta.
Tullier said it proved helpful to victims of last year’s hurricanes in southwest Louisiana. “We saw it after Laura with clients where this helped tremendously,” said Tullier.
He advises everyone to keep documentation of losses. “If it’s evacuation costs, if it’s food spoilage which insurance companies hate to pay for, anything related to that hurricane event, gas for your generators, try to keep a little log of all that because it all will benefit,” said Tullier.
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