IRS Releases Guidance for Hurricane Ian Tax Relief

As we all know, Hurricane Ian was one of most devastating and deadliest storms in U.S. history. It also ranks as one of the most expensive, with countless victims experiencing losses now estimated at over $80 billion. For the many Weiss clients among those affected, recently released guidance from the IRS concerning losses and relief is especially newsworthy. Weiss Senior Tax Manager Michael Izatt offers the following summary:

Casualty Loss
The Internal Revenue Code allows taxpayers in federally declared disaster areas to claim disaster-related casualty losses (i.e., qualified disaster loss) either in the year of the disaster or in the prior year. Consult with your Weiss tax advisor to determine which outcome is more favorable under your specific circumstances.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements, such as payments from the taxpayer’s employer. The affected taxpayer must take into account reimbursements from federal or state programs to restore lost property.

Note that a qualified disaster loss also includes personal-use property that was subject to theft in the disaster area for the covered period.

Although the 2022 instructions have yet to be finalized, the IRS has historically allowed claim for qualified disaster loss for those who do not itemize deductions. Additionally, unlike other casualty losses, a qualified disaster loss does not need to exceed 10% of your adjusted gross income to qualify for deduction; however, the typical $100 limit per casualty is increased to $500. For those who do not itemize deductions, an increased Standard Deduction is available for qualified disaster losses. We await the 2022 instructions for final guidance on the loss limitations for the 2022 tax year. In the meantime, keep track of your unreimbursed property losses.

Deferred Gain on Casualty Loss
If insurance or other reimbursement is greater than the cost or other basis of your personal, trade, or business property, you have a taxable gain. If the replacement property is similar to the property destroyed in the disaster, no gain is recognized and the basis in the new property is the same as your basis in the destroyed property. However, you must recognize gain if you receive unlike property (including money) as reimbursement. The rules allow the gain to be postponed or eliminated if the reimbursement is used to acquire like property within 2 years.

If you own or rent your primary residence within the Disaster area, special relief is available. The rules are more favorable for losses related to your primary residence. You may postpone gain from the receipt of insurance or other reimbursement for your primary residence for 4 years (expanded from 2 years for other personal, trade, or business property).

Furthermore, for contents of the home that are not scheduled on your insurance policy (so-called “unscheduled property”) there is no tax gain recognized for insurance proceeds for those contents. For scheduled property (such as a coin collection or fine art) insurance proceeds that pay for replacement property are taxable only to the extent that such payments exceed the cost of the replacement property.

The tax planning and timing of this election is critical. Work with your Weiss tax advisor at the earliest opportunity to make the appropriate elections to postpone these insurance gains.

Administrative Fees
Taxpayers who have lost tax records may request copies of previously filed tax returns and the IRS will waive the normal fees for those who reside, or whose records reside, in the affected Disaster area.

Although Notice FL-2022-19 provides relief for affected taxpayers, and the Internal Revenue Service assures us that affected taxpayers will be afforded relief, we expect that taxpayers will receive many notices related to late or missing tax filings and payments. Please work with your Weiss tax advisor to communicate with the IRS so that your tax accounts are well maintained with the IRS through the period covered by the Disaster relief.

Updated 2022 Tax Calendar
Florida Disaster Relieve Notice FL-2022-19, which provides relief provisions related to FEMA disaster declaration number DR-4673-FL, FL Hurricane Ian, was released in October, 2022 and covers tax deadlines falling on or after September 23, 2022 and before February 15, 2023.

Individuals, households, and businesses, including tax-exempt businesses, affected by Hurricane Ian that reside or have businesses anywhere in the state of Florida qualify for relief. All Florida counties are covered by the notice.

Taxpayers who are not in the covered disaster area, but whose books and records are maintained in Florida, are likewise eligible for relief.

For example, due to the extended deadlines, individual taxpayers who had a valid extension until October 17, 2022 to file their 2021 return will now have until February 15, 2023 to file. Note that tax payments related to the 2021 return were due April 18, 2022 and are therefore not covered by this extension.

Likewise, businesses with an original or extended due date, such as a calendar-year corporation whose 2021 extensions expired on October 17, 2022, also have the additional time.

However, tax payments that were due within the September 23, 2022 to February 15, 2023 time window do qualify for the extended due date of February 15, 2023. Consequently, the following tax payments are granted a new February 15, 2023 deadline:

1. 2022 Q4 Estimated Tax Payments normally due January 17, 2023
2. Quarterly Payroll Tax Returns normally due October 31, 2022 and January 31, 2023
3. Excise Tax Returns normally due on October 31, 2022 and January 31, 2023

Taxpayers who receive a late-filing or late-payment penalty notice due to the extended due date can work with their tax advisor to abate the penalty.