H&R Block and Operation HOPE are partnering to assist those impacted by October’s wildfires by offering free amended 2006 federal tax returns to enable disaster victims to recoup their losses more quickly.
Victims of the California fires who filed forms 1040, 1040A or 1040EZ, with a residential address in the disaster area or a California driver’s license, may qualify to deduct a portion of their loss on their federal tax return. H&R Block, the nation’s largest tax services company, will advise taxpayers on the tax implications of claiming a casualty loss and will amend their 2006 income tax returns for free.
Typically, tax filers must claim a casualty loss on their federal return in the year the loss occurs. However, if the President declares the area a federal disaster — as is the case in California — taxpayers can file amended returns and claim the losses on their prior years’ tax returns. This enables disaster victims to recoup their losses more quickly.
They also offer these tips in partnership with Operation HOPE, a non-profit, public benefit organization, founded immediately following the civil unrest of April 29, 1992 in Los Angeles to offer programs focused on connecting the minority community with mainstream, private sector resources.
Advice For California Homeowners Affected By Recent Fires:
If your home was DAMAGED in the Southern California wild fires, these five tips can help you successfully navigate the tax and insurance claims process.
- Photograph or document any property damage. This will assist with calculating the amount of the loss. It also may benefit you to take photos showing the condition of the property after it’s restored.
- Keep receipts. The IRS and insurance companies will make allowances for records that were destroyed, but having supporting documentation will make the claims process easier.
- File insurance claims in a timely manner. Because you can’t claim a tax loss for damage that you receive insurance proceeds for, it’s important to file insurance claims quickly.
- Replace damaged property with similar property. Replacement property doesn’t have to match item-for-item, but keeping it close will help you avoid having to pay taxes on gains from insurance proceeds.
- Get copies of past returns. The IRS will provide free copies of past tax returns to help you obtain past financial information. A photocopy of a prior year return may be obtained by contacting 1-800-829-1040 or visiting www.irs.gov.
If your home was DESTROYED in the wild fires, there are some important tax benefits to keep in mind:
- You have up to four years to replace your home or pay taxes on any gains from insurance payments.
- Taxpayers can deduct a loss on their 2007 return or amend their 2006 return, whichever helps their current tax and financial situation most.
- Food, medical supplies and other forms of disaster assistance aren’t taxable. And, they don’t reduce the amount of your loss claim unless they’re replacing lost or destroyed items.
- The cost of cleaning up can’t be considered part of the casualty loss. However, the cost of repairs can be used as a basis for determining the decrease in fair market value.
- Reimbursements for losses are not taxable, unless you’re repaid more for the property than the original cost plus improvements. Even if the reimbursement is more than the basis, you don’t have to pay tax if you replace your home within four years after the fire.
- You may be able to claim a casualty loss on your tax return. The loss amount is based on the lower of two numbers: The price paid for the property plus any improvements prior to the casualty, or the property’s decline in market value caused by the disaster. Once you determine which is lower, that amount is reduced by insurance and most other non-taxable reimbursements. If the property is not used for business, the deductible amount is reduced by 10 percent of your adjusted gross income and then reduced again by $100.