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Tax Tip of the Week
For the week of
October 6, 2003

If you're hit by disaster, look for the silver tax lining

The IRS has announced special tax relief for certain taxpayers affected by Hurricane Isabel. If you had losses due to Hurricane Isabel or some other natural disaster this year, there are several provisions in the tax law that may provide relief.

Extended tax deadline and interest abatement. The IRS is authorized to postpone the deadlines for filing and paying taxes by up to 120 days in a Presidentially-declared disaster area. Also, the IRS must remove interest penalties that result from your delay in paying any tax during the extended filing period.

Faster refund. Taxpayers suffering losses in a federal disaster area have a choice of which tax year to deduct the casualty loss. You may deduct it in the year the loss occurs, or it can be claimed on your prior year's tax return. Amending your prior year's return may allow you to get much-needed cash now instead of waiting to deduct the loss on your 2003 return.

Tax-free gain. If the insurance proceeds exceed the tax basis of your property, you will end up with a casualty gain. Casualty gains in federal disaster areas receive special tax treatment. For example:
  Individuals may qualify for up to a $250,000 gain exclusion ($500,000 for married couples) on their principal residence. That's because the destruction of the residence is treated as a "sale" for tax purposes.
  No gain is recognized on the insurance reimbursement for the contents of a building as long as those contents were not separately listed on the insurance policy.
  If you replace your property with similar property within four years, you may be able to avoid or postpone paying tax on any gain from your involuntary conversion.

If you suffered a casualty this year, give us a call to discuss the best course of action in your situation. We are here to help.


Prior Tax TipsClick here to view previous tax tips.

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