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Tax relief for disaster victims.



In the wake of two recent natural disasters--Hurricane Hugo and the California earthquake--the U.S. Congress set aside relief money for the hard-hit areas.

While disaster relief is not new, taxpayers in these federally declared disaster areas may deduct losses in the tax year immediately before the disaster (1988), enabling them to receive their tax refunds a lot earlier. (Keep in mind that many were not covered by insurance due to high premiums.)

Taxpayers who have filed their 1988 tax returns are allowed to amend them to claim their deductions and refunds. The deadline for making this carryback election to 1988 on the 1989 disasters is April 15, 1990 (the due date for filing the income tax return--excluding extensions--for the year in which the disaster actually occurred).

Additional tax relief has been offered by the Internal Revenue Service. As were the victims of Hurricane Hugo, the California residents who were rocked by the earthquake of October 17, 1989, were granted waivers of penalties for late filing and tax payments. Reference should be made to Tax notices nos. 89-108 (IRB 1989-46) and no. 89-136 (IRB 1989-44), both of which offer guidance to taxpayers about the specific tax relief granted disaster area victims.

Observation: Taxpayers should not assume an amended 1988 return is in their best interests. Non-business casualty losses must be reduced by $100 per loss and the remaining loss is deductible (as an itemized deduction) only to the extent it exceeds 10% of the taxpayer's adjusted gross income (AGI). Therefore, the casualty loss should be taken in the year of the lowest AGI and/or the year in which the itemized deduction is more beneficial.
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Author:Willens, Robert
Publication:Journal of Accountancy
Date:Feb 1, 1990
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