FS-2018-18, November 2018
With 2018 bringing record-setting hurricanes, wildfires and other disasters to many parts of the country, many Americans are now facing the challenge of reconstructing their financial records. Doing so, soon after a disaster, may be essential for properly documenting a tax-deductible loss, supporting various tax-related transactions or getting federal assistance or insurance reimbursement. The more accurately the loss is estimated, the more loan and grant money there may be available.
Whether lost or destroyed property is personal or business, here are some simple steps that can help.
- Get free return transcripts immediately by visiting the Get Transcript tool on IRS.gov.
- To order transcripts by phone, call 800-908-9946 and follow the prompts. Taxpayers can also request transcripts using their smartphone with the IRS2Go mobile phone app.
- To get transcripts of previous years returns by mail, file a Form 4506-T, Request for Transcript of a Tax Return.
- To request copies of past returns by mail, file Form 4506, Request for Copy of Tax Return.
- Write the appropriate disaster designation, such as “California Wildfires,” in red letters across the top of Forms 4506-T and 4506 to expedite processing and to waive the normal user fee.
Personal residence and real property
Real property, also called real estate, is land as well as generally anything built on, growing on, or attached to land.
- Take photographs or videos as soon after the disaster as possible. This helps establish the extent of the damage.
- Contact the title company, escrow company or bank that handled the purchase of the home to get copies of appropriate documents. Real estate brokers may also be able to help.
- Use the current property tax statement for land-versus-building ratios. If not available, owners can usually get copies from the county assessor’s office.
- Establish a basis or fair market value of the home by reviewing comparable sales within the same neighborhood. This information can be found by contacting an appraisal company or visiting a website that provides home valuations.
- Check with the mortgage company for copies of appraisals or other information they may have about cost or fair market value in the area.
- Review insurance policies, as they usually list the value of a building, establishing a base figure for replacement value insurance. For details on how to reach the insurance company, check with the state insurance department.
- If improvements were made to the home, contact the contractors who did the work to see if records are available. If possible, get statements from the contractors verifying their work and cost.
- Get written accounts from friends and relatives who saw the house before and after any improvements. See if any of them have photos taken at get-togethers.
- If there is a home improvement loan, get paperwork from the institution that issued the loan. The amount of the loan may help establish the cost of the improvements.
- For inherited property, check court records for probate values. If a trust or estate existed, contact the attorney who handled the estate or trust.
- If no other records are available, check the county assessor’s office for old records that might address the value of the property.
Resources, available online and at most libraries, that can help determine the current fair market value of most cars on the road include:
- Kelley’s Blue Book
- National Automobile Dealers Association
Additionally, call the dealer where the car was purchased and ask for a copy of the contract. If not available, give the dealer all the facts and details, and ask for a comparable price figure. If making payments on the car, check with the lien holder.
It can be difficult to reconstruct records showing the fair market value of some types of personal property. Here are some things to consider when cataloguing lost items and their values:
- Look on mobile phones for pictures that were taken in the home that might show the damaged property in the background before the disaster.
- Check websites that can help establish the cost and fair market value of lost items.
- Support the valuation with photographs, videos, canceled checks, receipts or other evidence.
- If items were purchased using a credit card or debit card, contact the credit card company or bank for past statements. Credit card companies and banks often provide user’s access to these statements online.
If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted:
- Draw a floor plan showing where each piece of furniture was placed – include drawers, dressers and shelves.
- Sketch pictures of the room looking toward any shelves or tables showing their contents.
- These do not have to be professionally drawn, just functional.
- Take time to draw shelves with memorabilia on them.
- Be sure to include garages, attics, closets, basements and items on walls.
- To create a list of lost inventories, get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.
- Check mobile phones or other cameras for pictures and videos taken of buildings, equipment and inventory.
- For information about income, get copies of bank statements. The deposits should closely reflect what the sales were for any given time period.
- Get copies of last year’s federal, state and local tax returns. This includes sales tax reports, payroll tax returns and business licenses from the city or county. These will reflect gross sales for a given time period.
- If there are no photographs or videos available, sketch an outline of the inside and outside of the business location. Then start to fill in the details of the sketches. For example, for the inside of the building, record where equipment and inventory was located. For the outside of the building, map out the locations of items such as shrubs, parking, signs and awnings.
- If the business was pre-existing, go back to the broker for a copy of the purchase agreement. This should detail what was acquired.
- If the building was newly constructed, contact the contractor or a planning commission for building plans.
Casualty and disaster tax losses
A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. If damage is to income‐producing or business property, taxpayers may be able to claim a casualty loss deduction on their tax return. But deduction limits and other restrictions apply to personal casualty losses. Starting in 2018, net personal casualty losses are only deductible if they relate to a federally-declared disaster. In addition, taxpayers must enter the FEMA disaster number on Form 4684.
Usually, a casualty loss is only deductible in the year it occurred. But if the property was damaged as a result of a federally-declared disaster, taxpayers can choose to deduct that loss on their return for the tax year immediately preceding the year in which the disaster happened. If a return has already been filed, a Taxpayer can amend it by filing a Form 1040X, Amended U.S. Individual Income Tax Return. For this purpose, a federally-declared disaster includes any locality designated for either individual or public assistance. For a list of qualifying disasters, visit FEMA.gov/Disasters.
Taxpayers may need to reconstruct their records to prove a loss and the amount of the loss. To compute loss, determine the following figures:
- The decrease in fair market value of the property that resulted from the casualty or disaster.
- The adjusted basis of the property – this is generally what was paid for the property, increased or decreased, because of certain events. For business property in particular, the adjusted basis may have been reduced substantially by depreciation.
Taxpayers may deduct the smaller of these two amounts, minus insurance or other reimbursement. For more information, see Publication 547, Casualties, Disasters, and Thefts and Publication 551, Basis of Assets.
If the casualty loss causes a taxpayer’s deductions to be more than their income for the year, there may be a net operating loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.
Determining the decrease in fair market value
Fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV is the difference between the property's FMV immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without such an appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in FMV.
Generally, use the cost of cleaning up or making repairs if the repairs are:
- Actually made
- Not excessive
- Necessary to bring the property back to its condition before the casualty
- Only made to repair damage
- Not adding value to the property or making it worth more than before the disaster happened
For more information on losses, see these IRS publications:
- Publication 547, Casualties, Disasters, and Thefts – This has information on figuring your casualty loss deduction.
- Publication 584, Casualty, Disaster, and Theft Loss Workbook – This can help individuals make a list of stolen or damaged personal-use property and figure the loss. It has a room-by-room listing to help recreate an inventory and figure the loss on the home and its contents and any motor vehicles.
- Publication 584-B, Business Casualty, Disaster and Theft Loss Workbook – This is available to help businesses list stolen or damaged business or income-producing property and to figure the loss.
For assistance and additional information, use these resources:
- IRS Disaster Assistance Hotline at 866-562-5227 – Monday through Friday from 7 a.m. to 10 p.m., local time
- Publication 2194, Disaster Resource Guide for Individuals and Businesses
- Publication 583, Starting a Business and Keeping Records
- Tax Relief in Disaster Situations
- Federal Emergency Management Agency
- Small Business Administration