Taxpayers may have disaster-related tax relief available

Note: This fact sheet reflects the law at the time the IRS issued the fact sheet.

FS-2018-9, April 2018

The Internal Revenue Service reminds taxpayers and businesses that special tax law provisions are available to help them recover from the impact of qualified disasters in 2016 and 2017.

For 2017, the provisions include individuals affected by Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires and for victims of California wildfires, flooding, mudflows and debris flows. This special relief is included in the Disaster Relief and Airport and Airway Extension Act of 2017, the Tax Cuts and Jobs Act of 2017 and the Bipartisan Budget Act of 2018.

See IRS Publication 976, Disaster Relief, for specific information relating to:

  • Qualified 2016 disasters declared by the president in 2016
  • Hurricane Harvey or Tropical Storm Harvey disaster area, covered disaster area and disaster zone
  • Hurricane Irma disaster area, covered disaster area and disaster zone
  • Hurricane Maria disaster area, covered disaster area and disaster zone
  • California wildfire disaster area, covered disaster area and disaster zone
  • Victims of California wildfires, flooding, mudflows, and debris flows

These special rules apply only to individuals with a U.S. income tax filing requirement with the IRS. 

Special rules for claiming qualified disaster losses

Generally, a disaster loss is a loss that occurred in a federally declared disaster area because of or related to a federally declared disaster. Although a disaster loss is a type of casualty loss, Congress enacted special rules that generally provide more favorable tax treatment for qualified disaster losses. 

Taxpayers can claim a qualified disaster loss for personal casualty losses resulting from federally declared disasters that occurred in 2016, as well as certain 2017 disasters mentioned above.

A 2016 qualified disaster is a major disaster declared by the president of the United States under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act in calendar year 2016. A 2016 qualified disaster area is an area for which such a major disaster was declared.

A 2017 qualified disaster includes the following federally declared disasters: Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. These disasters were declared by the president of the United States under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act in calendar year 2017. Not all 2017 federally declared disasters are considered 2017 qualified disasters. Only Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires are considered 2017 qualified disasters for special disaster tax relief purposes.

Affected taxpayers can also identify themselves to the IRS or ask disaster-related questions by calling the special IRS disaster hotline at 866-562-5227.

Claiming qualified disaster losses

Qualified disaster losses are claimed on Form 4684, Casualties and Thefts.

Normally, taxpayers claim a casualty loss as an itemized deduction. However, this relief helps taxpayers who don’t itemize. Taxpayers can deduct 2016 and 2017 qualified disaster losses for both regular and AMT purposes without itemizing other deductions on Schedule A. They can add unreimbursed losses, minus $500, to their standard deduction.

The $100 limitation per casualty increased to $500 for net qualified disaster losses. Taxpayers must use $500 as the reduction when determining qualified personal casualty loss.

The 10 percent of adjusted gross income limit doesn’t apply to net qualified disaster losses. Taxpayers are allowed a deduction for the entire portion of the disaster loss, not covered by insurance or otherwise reimbursed, that exceeds $500.

Claiming losses on federal tax returns

Unreimbursed casualty and theft losses are generally claimed in the year the casualty occurred or the year in which the theft was discovered. However, taxpayers who have a casualty loss attributable to a federally declared disaster that occurred in an area warranting public or individual assistance, or both, can elect to deduct the loss in the tax year before the loss occurred. Thus, taxpayers may elect to deduct a disaster loss that occurred in 2017 on their 2016 federal tax return. See the instructions for Form 4684 for information on how to elect to deduct disaster losses in the preceding year.

Taxpayers may wish to seek advice from a tax professional to determine the best tax year to claim their personal casualty losses.

Taxpayers may apply this rule to claim qualified disaster losses they sustained in 2017 on their 2016 returns. Taxpayers can file their tax return electronically if they are claiming the loss on their tax year 2017 federal tax return that is generally due April 17, 2018. See the 2017 Form 4684 and its instructions for more information. Taxpayers in Puerto Rico and the U.S. Virgin Islands who suffered disaster losses related to Hurricane Maria have until June 29, 2018, to file their 2017 U.S. tax returns. Any taxpayer needing additional time to file their 2017 return can file an extension of time to file. The extension gives them until Oct. 15, 2018, to file.

Taxpayers who have already filed their 2016 tax return can amend it to claim their qualified disaster loss by filing a Form 1040X. See the 2016 Instructions for Form 4684 for more information.

Amended tax returns can take up to 16 weeks to process. To deduct the loss on their 2016 return, taxpayers must file the amended return on or before Oct. 15, 2018. The revised 2016 Instructions for Form 4684 includes information regarding the election to claim a qualified disaster loss sustained in 2016 on an amended 2015 tax return. 

Taxpayers who have not filed their 2016 tax return and want to deduct or increase their standard deduction by their net qualified disaster loss on their 2016 tax return must file on paper and may not file electronically. Use either Form 1040 or Form 1040NR. Taxpayers in Puerto Rico and the U.S. Virgin Islands with valid extensions to file who suffered disaster losses related to Hurricane Maria have until June 29, 2018, to file their 2016 U.S. tax returns. To figure the net qualified disaster loss, see the 2016 Instructions for Form 4684. Indicate “Federally Declared Disaster” at the top of the tax return as outlined in the Form 4684 instructions. Paper Form 1040 processing can take up to six weeks.

Guidance providing safe harbor methods for determining the amount of casualty and theft losses

Generally, taxpayers determine the amount of their casualty and theft losses through a competent appraisal or the cost of repairs. Instead of using the general rules, the safe harbor methods allow taxpayers to calculate their losses in other ways.

Revenue Procedure 2018-08 provides safe harbor methods that taxpayers may use in determining the amount of their casualty and theft losses for their personal-use residential real property and personal belongings. It provides safe harbor methods that apply to all eligible taxpayers and safe harbor methods that may be used in the case of casualty and theft losses occurring as a result of a federally declared disaster.

Revenue Procedure 2018-09 provides a cost indexes safe harbor method that taxpayers may use in determining the amount of their casualty losses for their personal-use residential real property damaged or destroyed in Texas, Louisiana, Florida, Georgia, South Carolina, Puerto Rico or the U.S. Virgin Islands as a result of Hurricane and Tropical Storm Harvey, Hurricane Irma or Hurricane Maria. It provides tables and calculation methods to determine the decrease in fair market value for several different categories of damage.

Earned Income Tax Credit and Additional Child Tax Credit

Earned income is an eligibility factor for the Earned Income Tax Credit and the Additional Child Tax Credit. This relief allows eligible taxpayers to use their earned income from either tax year 2017 or 2016 when determining the EITC or ACTC on their 2017 tax return if their earned income for tax year 2016 is greater than their earned income for tax year 2017. Affected individuals should figure their credits both ways before filing and use the year that gives the most benefit.

For residents of Puerto Rico, this relief applies only if the individual is entitled to claim the EITC or ACTC and is required to file a U.S. income tax return with the IRS. In addition, residents of Puerto Rico who claim the ACTC for three or more children on Form 1040-SS, Form 1040-PR, or a U.S. income tax return filed with the IRS may use their Social Security taxes from either tax year 2017 or 2016 when determining the ACTC if their Social Security taxes for tax year 2016 are greater than their Social Security taxes for tax year 2017. Affected individuals should figure the ACTC both ways before filing and use the year that gives the most benefit.

To qualify for this relief, one of the following must apply on the date listed to your home or the main home of your spouse if filing jointly:

  • On Aug. 23, 2017, the home was located in the Harvey disaster zone. 
  • On Aug. 23, 2017, the home was located in the Harvey disaster area and the taxpayer (or taxpayer’s spouse if filing jointly) were displaced from the home.
  • On Sept. 4, 2017, the home was located in the Irma disaster zone. 
  • On Sept. 4, 2017, the home was located in the Irma disaster area and the taxpayer (or taxpayer’s spouse if filing jointly) were displaced from the home.
  • On Sept. 16, 2017, the home was located in the Maria disaster zone.
  • On Sept. 16, 2017, the home was located in the Maria disaster area and the taxpayer (or taxpayer’s spouse if filing jointly) were displaced from the home.
  • On Oct. 8, 2017, the taxpayer’s main home or the main home of the taxpayer’s spouse, if filing jointly, was located in the California wildfire disaster zone.
  • On Oct. 8, 2017, the taxpayer’s main home or the main home of the taxpayer’s spouse, if filing jointly, was in the California wildfire disaster area (but not in the disaster zone) and the taxpayer was displaced from their home because of the California wildfires.

For a listing of the counties, municipalities and islands in a disaster zone, see Hurricane Harvey Disaster Zone, Hurricane Irma Disaster Zone, Hurricane Maria Disaster Zone or California Wildfire Disaster Zone in Pub 976.

Tax relief for affected businesses – employee retention credit

This relief helps businesses with a U.S. income tax filing requirement. An eligible employer with a U.S. income tax filing requirement who conducted an active trade or business in the Hurricane Harvey, Hurricane Irma, Hurricane Maria or the California wildfire disaster zones may be able to claim the employee retention credit.

The credit is 40 percent of each eligible employee’s qualified wages. The maximum credit is $6,000 per employee.

An employer is eligible if:

  • it conducted an active trade or business in a Harvey, Irma, Maria or California wildfire disaster zone on the date of the disaster,
  • the trade or business was inoperable on any day after the time of the disaster in their area and before Jan. 1, 2018, because of damage sustained from the hurricane in their area.

Eligible employees are those employees whose main place of employment with an eligible employer was:

  • on Aug. 23, 2017, in the Hurricane Harvey disaster zone;
  • on Sept. 4, 2017, in the Hurricane Irma disaster zone; 
  • on Sept. 16, 2017, in the Hurricane Maria disaster zone; or
  • on Oct. 8, 2017, in the California wildfire disaster zone.

Qualified wages are wages paid or incurred from the time one of the above disasters affected a business’s operations to Jan. 1, 2018, (or the date they resume operations, whichever is earlier). It doesn’t matter if the employee did not work or if they worked at a different location.

Temporary suspension of limits on charitable contributions

In most cases, the amount of charitable contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 50 percent) of the taxpayer’s adjusted gross income (AGI) and by an overall limitation on itemized deductions. Qualified contributions are not subject to these two limitations. Individuals may deduct qualified contributions up to 100 percent of their adjusted gross income. A corporation may deduct qualified contributions up to 100 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year. To qualify, the contribution must be: 

  • a cash contribution;
  • made to a qualifying organization;
  • acknowledged in writing by the organization and say that the contribution will aid relief efforts in the Hurricane Harvey, Irma or Maria disaster area; made between Aug. 23, 2017, and Dec. 31, 2017, for Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma or Hurricane Maria; or Oct. 8, 2017, and Dec. 31, 2017, for California wildfires.

Contributions of non-cash property do not qualify for this relief. Taxpayers may still claim non-cash contributions as an itemized deduction, subject to the normal limits.

The Around the Nation page provides IRS news specific to local areas, primarily disaster relief or tax provisions that affect certain states. Taxpayers can also review the list of recent tax relief provided by the IRS in disaster situations based on the Federal Emergency Management Agency's declarations.

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