Disaster Victims Entitled to Rapid Tax Refund

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The IRS allows an itemized deduction for certain unreimbursed losses resulting from casualties and thefts. When a disaster loss occurs in an area that has been designated by the President of the U.S. as a Federal disaster area, as is the case in the five boroughs of New York and Arlington, Virginia, due to the recent terrorist attacks, individuals who suffer casualty losses stemming from the disaster may take certain steps to rapidly recover tax benefits.

In the case of such a disaster, those who suffered casualty losses, such damage to or loss of property, are entitled to deduct the portion of the loss that is not reimbursed by insurance. The amount deducted must also be reduced by the value of any property received by the victim as a replacement for lost or damaged property.

In the situation of a federally-declared disaster area, victims may choose between reporting their casualty loss on the tax return for the year in which the casualty occurs, or they may claim the loss on the tax return for the prior year (in this case, the 2000 tax return). If the tax return for the prior year has already been filed, the return may be amended to reflect the loss.

An amendment of a prior year tax return to reflect a current year casualty loss must be filed by the later of one of these two dates:

  1. The due date for filing the original tax return for the year in which the casualty occurred, without regard to extensions for late filing,
  2. The due date for filing the original return, including extensions, for the tax year immediately prior to that year in which the disaster actually occurred.

Typically this will mean that an amended 2000 tax return that reflects the casualty loss resulting from the recent terrorist attacks must be filed by April 15, 2002.

Form 1040X, Amended U.S. Individual Income Tax Return, should be used to amend a prior year tax return. The casualty loss is reported on Form 4684, Casualties and Thefts.

Taxpayers who amend 2000 tax returns to claim a loss from the recent terrorist attack should write "September 11, 2001 Terrorist Attack" in red ink across the top of the 1040X to expedite processing.

Information about claiming a casualty loss can be found in IRS Publication 547, Casualties, Disasters and Thefts (Business and Nonbusiness), and also in the instructions for Form 4684, Casualties and Thefts.

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