Taxes and Disaster Relief

Copies of past tax returns are free for people affected by a federally declared disaster area.

To request copies of tax returns, complete IRS Form 4506. You can also request account transcripts (computer printout) with Form 4506-T. On Form 4506, write “Vermont/ Severe Storms and Flooding” (or another description of the disaster that affected you) in red ink at the top so that you are not charged.

Individuals and businesses in Vermont who had uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred, or the return for the prior year. This may lower your tax payment.

The IRS calls disaster losses "casualty losses." You may deduct personal property losses that are not covered by insurance, FEMA or other reimbursements. Learn more about casualty losses below, and on the IRS website. Ask for help from a tax preparer.

You can claim casualty losses for your:

• home
• property
• cars or trucks
• appliances
• TVs, stereos, and other entertainment equipment
• computers and printers
• tools
• household goods (dishes, towels, sheets, etc.)
• clothes

The amount of the loss must exceed (be more than) 10% of your adjusted gross income (AGI) by $100. For example, if your AGI is $20,000, 10% of $20,000 = $2,000, so your loss must be greater than $2,000 + $100 = $2,100.

Note: A casualty loss only lowers your tax obligation; it is not a refundable credit that you would get as a refund check. So if there is no other reason to file a tax return, filing the loss by itself won’t give you a refund.

To determine the amount of casualty loss you can deduct, you will need to know what you paid for the property plus the cost of any improvements you made to the property before the natural disaster. You will also need to know the fair market value of the property before the disaster as well as after the disaster. This will tell you the total loss in value.

For the deduction, you will use either the cost of the property or the loss in value, whichever is smaller. You will also need to subtract any amounts paid by insurance and FEMA.

Example: Jill bought her home for $150,000. Before the flood, Jill’s home was worth $190,000. After the flood, it was worth $90,000. This means her home lost $100,000 in value. She has to pick the lowest number between what she paid ($150,000) and loss in value ($100,000). Therefore, she can claim a $100,000 loss. But Jill also got an insurance payment of $50,000. She must subtract that from the $100,000 loss. Therefore, her casualty loss is $50,000.

Cost of home: The best proof is copies of original records. If you do not have your papers, these places could help in proving what you paid:

1. HUD One Settlement Statement
2. Real estate agent who handled the closing of your home
3. Mortgage company that loaned you money to buy your home
4. Deed to your home, in your town land records
5. Town property tax records
6. Bank records
7. Online real estate sites

Cost of vehicle: If you do not have your papers, try these places:

1. Car dealer where you bought the vehicle
2. Finance company who you are making payments on your loan to, if applicable
3. Bank records
4. Insurance company

Personal property: Start with the most expensive items. Check these places:

1. Credit card statements
2. Large stores like Home Depot or Best Buy may keep detailed records of what you bought
3. Bank records

Improvements: These are different from repairs. These can be proven by:

1. Receipts from a home improvement store
2. Bills from a contractor
3. Bank statements

The best way to prove what your property was worth is to get an appraisal. An appraisal is done by an expert who decides what the property is worth. The IRS may not agree with the amount you claim, so an appraisal is the best proof.

If you cannot afford an appraisal, check these places:

1. Mortgage company
2. Town tax appraisals
3. Insurance company
4. Insurance Adjuster’s Report if filing an insurance claim for flood damage. This will show current value.
5. Your town may do new tax appraisals because of the natural disaster. Call and ask if your town is doing this.

Fair Market Value of Vehicles: Try these places:

1. Kelley Blue Book
2. NADA
3. Edmunds
4. Insurance Adjuster for your insurance company

Fair Market Value of Personal Belongings: It is harder to prove what furniture, stoves, refrigerators, clothing and other belongings are worth. Take pictures to prove the flood damage. Some other options include:

1. Old catalogs may help show what the items cost.
2. Check prices at local thrift stores. Find items like the ones you own. This shows what your belongings are worth.

If you cannot get an appraisal, you can also use the cost of repair and cleanup to determine your loss. Just remember that an appraisal is the best proof.

If using the cost of repair and cleanup to calculate your casualty loss, the repairs must make the property like it was before the natural disaster, the cost must be reasonable, and the repairs cannot make the property worth more than it was worth before the disaster. You must pay for the repairs, and you will need to keep receipts to prove the cost to the IRS.

To calculate and report casualty losses, you will need to complete IRS Form 4684. If you choose to claim the loss for the previous year, you will need to amend last year’s return using Form 1040X. You will then need to complete and attach Form 4684 with “Vermont/Severe Storms and Flooding” (or another description of the disaster that affected you) printed in red ink at the top of the forms.

If you have a new address, complete Form 8822 to notify IRS so that you will receive any necessary notifications and correspondence.

If you have a casualty loss, you should seek assistance with your taxes. Professional tax preparers will be able to determine which year would be more beneficial to claim the loss in and will be able to complete the necessary paperwork.

Ask for help from a tax preparer.