IRS Disaster ReliefPosted on Monday, February 20th, 2006 by Anne-Marie Pollowy Toliver PhD
IRS Disaster Relief – The Basics Explained
How a disaster victim can get the most tax refund from the IRS
The IRS claim process is straight forward if you understand it. There are basically only two steps in it:
- you (the disaster victim) have to provide proof of your loss in terms of dollar value;
- you and/or your tax consultant use your proof of loss to develop the best possible strategy to reduce your tax liabilities and maximize your potential refunds.
This article will address what you, the disaster victim, must do to provide proof of loss.
The first thing you have to do is prepare a complete list of ALL your possessions. You can and must do this even if you have not been able to return to your home and/or place of business .
As a businessowner, you are more likely to have an inventory of all your assets than a homeowner. If you dont have such an inventory, use your prior years tax returns to see what items you have claimed, what items you are depreciating, and what your end-of year inventory was. Then start recreating the conditions in your businessas they were just before the disaster.
If you are starting from scratch, instead of using (or in addition to ) a notebook and slips of paper start a computerized inventory NOW. This will allow you to document all your assets and add new information as you go along. ( It is also a great way to keep an immediate record of the items you are replacing, such as this new computer). The best affordable businessinventory product on the market is LibertyStreets AssetManage Business; you may want to download a trial version and see how you like it.
As you recreate your list of assets, include costs for each item: the original purchase price or the basis of the property. To complete this list, you must enter the fair market price of each property just before the disaster.
You go through the same process for your home, i.e. your personal possessions. In the same manner as for your business , you complete a just before list of all your possessions (including your home, your cars, your clothes, etc.).
You can use IRS Publication 584 (Casualty, Disaster, and Theft Workbook for Personal-Use Property) or obtain a copy from your local IRS office. Go directly to page 3, where in Schedule 1 Entrance Hall, you will find a series of items that you may find in an average entrance hall; add to this list as necessary.
Move on from here to the other Schedules: Living Room, Dining Room, Kitchen, Den, Bedrooms (1 schedule for each bedroom please), Bathrooms (1 schedule for each bedroom please), Recreation Room, Laundry and Basement, Garage, Sporting Equipment, Mens Clothing (list separately for each person), Womens Clothing (list separately for each person), Childrens Clothing (list separately for each child), Jewelry (list separately for each person), Electrical Appliances, Linens, Miscellaneous.
Whether for your businessor your home, just trying to remember and list all your assets is a major job much of it must be done from memory, but you have to actually track and substantiate the dollar amounts for cost (or basis) and fair market value before the disaster.
The next step is to identify what is lost and what is damaged. When you are allowed back home or back to your business premises, you will be sorely tempted to just throw out all those hopelessly damaged items.
DONT DO THAT!!!!
Control yourself and plan ahead. Before you dump anything by the roadside, before you fill those garbage bags, take a whole lot of photographs. You dont need a video camera, you dont need anything fancy one of those small, cheap, throwaway cameras will do just fine. Your ONLY purpose is to make a visual record of the conditions.
You kitchen has mud on the floor? Click.
The food is rotten in your refrigerator or freezer? Click.
Your furniture is water logged and is filthy dirty? Click.
Your clothes are in a heap of wet rags? Click.
Ok you get the point. Take LOTS of pictures.
Take pictures of your home and/or businessfrom the outside all sides.
Take pictures of your garden, your cars what there is left of them.
These pictures (date stamped so there is no possibility of tampering), with the additional information the IRS requires are your proof of loss and will be extremely useful when you are ready to submit a claim.
After you have taken all those pictures, you have to repeat the valuation process for each and every item. You want to know what the fair market value of each property is after the disaster.
How badly are things damaged? Are they salvageable? What are they worth in this condition? What is a total loss?
You are likely to need the help of valuation professionals at this point. These can be qualified real estate agents (who could help with both the before and after fair market value of your property), independent insurance adjustors (my preference over adjusters who work for your insurance company), or qualified assessors. Whomever you select, make sure that they give have the expertise and that they give your valuation in writing.
After all these asset valuations ( both before and after ) are compiled, you are ready to start calculating your disaster loss.
Anne-Marie Pollowy Toliver, PhD is a retired University professor and the author of the Home Owners Guide to Disaster Tax Relief. This easy to read, step-by-step guide with many examples helps taxpayers to claim all the allowable disaster tax relief from the IRS. This e-book and other useful tax and disaster information is available from http://www.disaster-tax-relief.com