By Ken Berry
The IRS is throwing yet another life preserver to taxpayers who were victimized by Hurricane Sandy. Under a new Notice, these taxpayers now have until October 15, 2013, to deduct their disaster-area losses on a 2011 or 2012 return. Without this extension, the "window of opportunity" would have closed shut on April 15 (IRS Notice 2013-21).
Hurricane Sandy struck the East Coast with a vengeance in the waning days of October. The president designated the District of Columbia and numerous counties within ten states – Connecticut, Delaware, Maryland, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, and West Virginia – as federal disaster areas.
A special tax law provision (IRC Sec. 165(i)) allows a taxpayer sustaining a loss in a federal disaster area to elect to deduct or make a refund claim for qualified casualty losses on the tax return for the year immediately preceding the tax year in which the disaster occurred. Thus, for a loss suffered in 2012, the election may be made on a 2011 return or on a 2012 return. But the claim must be made by the later of:
- The tax return due date for the tax year in which the disaster actually occurred without regard to any filing extension, or
- The tax return due date for the tax year immediately preceding the tax year in which the disaster occurred without regard to any filing extension.
The October 15 deadline coincides with the due date for taxpayers requesting an automatic filing extension for 2012 returns. Note that amending a 2011 return may provide other tax benefits to some taxpayers besides a faster refund. However, other taxpayers may realize greater tax savings by making the claim on a 2012 return.
The return or claim should specify the date or dates of the disaster that gave rise to the loss, and the city, town, county, and state in which the property that was damaged or destroyed was located at the time of the disaster. The election is irrevocable ninety days after it's made. To help the IRS identify affected taxpayers entitled to the extended deadline, refer to Notice 2013-21 on the return, amended return, or refund claim for which the election is being made.
The new notice is the latest in a string of pronouncements and rulings designed to provide relief to Hurricane Sandy victims. However, the IRS hasn't waived the usual limits for casualty loss deductions, including the reduction of $100 per casualty event and the overall threshold of 10 percent of adjusted gross income.