IRS Tax Relief for Hurricane Harvey: Extensions, Loss Deductions and More

August 30, 2017 | By: Kari Brummond, EA

tax relief for hurricane harveyThe IRS is offering tax relief for Hurricane Harvey victims. Specifically, it is giving affected taxpayers extensions on certain tax returns and payments. The extensions apply to most returns or payments due between August 23, 2017 and January 31, 2018. At the time of writing, most of these deadlines have moved to January 31, 2018.

Here’s a closer look at which tax returns and payments qualify, how to apply for the extension, and tips on claiming losses related to Hurricane Harvey.

Extensions for Estimated Quarterly Income Tax Payments

If you pay estimated income taxes every quarter, you can get an extension on filing and paying. This applies to payments due September 15, 2017 and January 16, 2018. Both due dates are now January 31, 2018. You won’t face any late fees if you submit your payments by that date.

Quarterly Payroll and Excise Tax Returns

If your business had quarterly payroll or excise taxes due on or after August 23 and before September 7, 2017, there is no late-deposit penalty as long as you make the deposit by September 7, 2017.

The due date for the quarterly payroll and excise tax returns due on October 31, 2017, has moved to January 31, 2018. These new deadlines only apply to select victims of Hurricane Harvey as explained below.

Extensions of Extensions

If you requested an extension for filing your individual tax return, your return was due October 16, 2017, and if you had an extension for your business return, the due date was September 15, 2017. Both of these returns are now due January 31, 2018.

It’s important to note that the tax payments due with these returns were originally due on April 18, 2017. As a result, taxpayers are not getting any relief or discounts on those payments. The new due date only applies to the return itself.

Who Qualifies for the IRS Tax Extension for Hurricane Harvey?

These extensions apply to any residents of areas that qualify for individual assistance by the Federal Emergency Management Agency (FEMA). At the time of writing, 18 counties qualify, but if additional counties are added to the list, those citizens will automatically receive relief.

Currently, the following counties in Texas are included: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, and Wharton.

You can also qualify if you keep your tax records in the affected areas or if you are a disaster worker in one of the affected areas. To qualify as a disaster worker, you have to be a volunteer or employee with a recognized government or charity organization.

Applying for the Tax Extension From Hurricane Harvey

If your address is in one of the affected areas, the IRS automatically extends you the extension. You don’t need to submit an application.

However, mistakes can happen. If the IRS sends you a late notice or a notice of fees or penalties, you need to contact the agency directly. Use the phone number on your letter, and let the agent know that you reside in one of the counties affected by the hurricane. Then, the IRS should remove the penalties.

If you live outside of the area but you qualify based on your records or because you are a disaster worker, you need to apply. Contact the IRS’s disaster hotline at 866-562-5227.

Claiming Losses From Hurricane Harvey

As a taxpayer, you also have the right to claim casualty losses. Typically, you must claim the losses in the year they occur, but if you are in one of the above counties affected by Hurricane Harvey, you can claim your losses on your 2017 return or retroactively on your 2016 return.

If you have insurance, you must file the claim as soon as possible. If you don’t file the claim, you may not be eligible to claim your losses on your return. Additionally, the losses can only include losses related to Hurricane Harvey. They cannot include property devaluation due to normal wear and tear.

Use Form 4684 to calculate the value of the loss. Basically, this form prompts you to take the lesser of the property’s adjusted basis (the purchase price of the property) or the decrease in fair market value due to the damage sustained by the hurricane. Then, you need to subtract the amount of your insurance payment. You also need to subtract $100 and 10 percent of your adjusted gross income.

There are different rules for claiming losses on business or investment properties. You need to check with the IRS or a tax professional. Additionally, you cannot claim losses related to future income or earnings.

Amending 2016 Tax Returns to Claim Losses From Hurricane Harvey

To apply the losses to your 2016 return, you need to file an amended tax return (Form 1040X). You have until six months after the due date of your 2017 return. That makes the deadline September 16, 2018.

However, you can apply before that. Include Form 4684 with your amended return. Note the name of the disaster, a description, and the address of the affected property. You can attach an extra sheet of paper with more details. If you submit your amended return electronically, you can attach a pdf file with more information.

Also, write that you are taking a “Section 165 election”. It usually takes the IRS 60 days to respond. Write “Hurricane Harvey Disaster” on the outside of your envelope so that it gets noticed.

Questions About Extensions and Losses Related to Hurricane Harvey

Again, if you have any questions on tax return extensions or claiming losses related to Hurricane Harvey, you can contact the IRS directly or reach out to a tax professional. The IRS disaster hotline is 866-562-5227.

401k Loans and Hardship Distributions

The IRS today announced that participants of various retirement plans now will have access to “streamlined loan procedures and liberalized hardship distribution rules.” This means that taxpayers who are victims of Hurricane Harvey can take advantage of capital in their retirement account with less red tape. Moreover, for those retirement accounts that are applicable, obtaining a loan will be easier.

More information can be found here on the extension and losses. For more information on 401k loan or hardship distribution changes the IRS made for Hurricane Harvey victims, see this link.