2018 IRS Casualty Loss Rules for Federal Disaster Areas

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“Out with the old, and in with the new” is a well known quote, first said by Lee Douglas IV.

The IRS Casualty Loss rules that we could use to deduct losses as recently as 12/31/17 are “out” and more restrictive rules are “in”- effective January 1, 2018. This change was part of recent tax reform titled ‘The Tax Cuts and Jobs Act of 2017’.

  • Old rules allowed you to take a Casualty or Theft loss without a presidential Federally declared major disaster
  • New rules only allow a Casualty (not a theft) loss deduction when a presidential Federally major disaster is declared
  • On 8/4/18, The Carr Fire, in Shasta County, CA received this declaration verbally and the declaration was posted on the IRS website on 8/6/18, on the California state specific page

When this occurs, the IRS has special tax law provisions that may help taxpayers and businesses recover financially. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Both individuals and businesses in a federally declared disaster area can get a faster refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended return. Yes, this means that your 2018 loss could be used to amend your 2017 tax return, or the loss could be used be used on your 2018 tax return. Applying the loss to an amended return, could provide funds to help rebuild now. If you wait, possibilities can be quantified for both years before the decision is made. Affected taxpayers claiming the disaster loss on a 2017 return should put the Disaster Designation, “California, Wildfires and High Winds” at the top of the form so that the IRS can expedite the processing of the refund. With the broad perspective in mind, lets explore beginning details.

Casualty Loss:

A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. It does not include normal wear and tear or progressive deterioration (termite damage). Although only the Carr Fire currently qualifies for this special IRS treatment, a broad definition is provided, because of the possibility of future Presidential Declared Disasters (PDD’s).

Initial Hurdles:

  1. Is your casualty loss in a PDD area?
  2. If so, the deduction is used on Schedule A- Itemized deductions
  3. Is your Itemized Deductions greater than your Standard Deduction?

 

2018 Standard Deduction:

  • Married Filing Joint $24,000
  • Head of Household $18,000
  • Single $12,000
  • Married Filing Separate $12,000
  • Additional small deduction is available for over 65 &/or blind

 

2017 Standard Deduction:

  • Married Filing Joint $12,700
  • Head of Household $ 9.350
  • Single $6,350
  • Married Filing Separate $6,350
  • Additional small deduction is available for over 65 &/or blind

 

Claiming the Loss:

  • Individuals claim their casualty loss as an Itemized Deduction on Form 1040, Schedule A
  • For property held by you for personal use, you must subtract $100 from each casualty event that occurred during the year after you have subtracted any salvage value and any insurance or other reimbursement
  • Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty loss for the year
  • Consider using your 2017 Adjusted Gross Income (AGI) as a benchmark – (the last line, on the 1st page, of your 1040 tax return)
  • Report the loss on Form 4684, Casualties and Thefts
  • Use Section A for personal-use property and Section B for business or income-producing property
  • If personal-use property was damaged or destroyed you may wish to refer to Pub 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)
  • For losses involving business-use property, refer to Pub 584-B, Business Casualty, Disaster, and Theft Loss Workbook
  • These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records

 

Initial Action Steps:

  • Inventory your loss by property type- Real Property (real estate); Personal Property (automobiles); Business or Investment property
  • If you own real estate, determine your basis – (cost or adjusted basis)
  • If you need to replace IRS information, use their “Get Transcript” tools, for wage/income information and to obtain previous tax returns
  • State tax rules are different; research yours when you can, to see if tax benefits are available there
  • When you can:
  1. Quantify the value of items lost
  2. Quantify the money received to replace part of your loss
  3. Find your initial IRS loss number: Value of items lost – money received = unreimbursed loss
  4. Use the Unreimbursed loss number to see if the IRS rules, included above, can help you recover, at least some, financially
  5. If you have questions, feel free to contact me via e-mail or by phone; if you use e-mail, please do not send attachments or any personal financial information- that information should always be protected

 

More Information:

Almost two (2) years ago, on 8/23/16, I wrote a blog titled, “Can the IRS help you recover from Mother Nature?” Information about “Net Operating Losses” or “How to Quantify the Loss” can be found there.

In January 2018, I attended an eight (8) hour “Casualty Loss Training” workshop, hosted by the National Association of Tax Professionals. The workshop was created to help Tax Professionals help those affected by Hurricanes Harvey, Irma, and Maria. It may be helpful to know that special legislation was passed to further help those affected by the named hurricanes. The Disaster Tax Relief and Airport and Airway Extension Act of 2017, HR 3823, was signed in to law on September 29, 2017. Perhaps, special rules will be provided to help California recover, faster, with new legislation written just for you.

As I finish writing this blog, the Mendocino Complex fire has just become the largest fire in California history. My heart goes out to all those affected. Although I was born in Michigan, I grew up in Los Gatos, CA and have family residing from one end of the state to the other-literally.  I have family in Redding and in Weaverville, which is why I have followed the Carr Fire so closely; I also have a lot of family/friends in San Diego and others scattered through out the state.

 

Personal Note:

From a heart perspective, I have a sense of what loss and recovery feels like. As a result of the hurricanes last year, I had family/friends living in 5 federal disaster areas: Bexar County (myself in San Antonio); Harris County (my son and others in Houston); and my parents and other family in Florida. During that time, I was posting helpful resources as they became available to me. I will continue to watch the California fires and will share information with you. We might live in separate states, but that just means we are not close neighbors. People as far away as Australia and New Zealand are coming to help you and I want to help you too.

“It always seems impossible until it is done.” – Nelson Mandela

 

Thanks for reading,

Deb

Deborah Ann Fox, CPA helps Individuals and Small Business Owners build and protect their financial wealth. She can help by being your financial compass by providing education and service, while you captain your ship and make the decisions.

Debbie offers free 30 minute no obligation consultations. We can discuss/resolve via a mix of e-mail, phone, virtual, and in-person communications.

https://www.DeborahFoxCPA.com

Call 619-549-2717

E-Mail me @ debfoxfinancial@gmail.com 

Twitter: @debfoxfinancial

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Milestones & Mountains – the LGBT “Financial Playing” Field

In Honor of the 40th anniversary of the San Diego Pride Festival this weekend, I offer an update about “Financial Equality” for the LGBT community, with whom I celebrate the financial victories that have been achieved since we celebrated this festival last year. 

Last year, we had 2 huge U.S. Supreme Court 6/26/13 decisions to celebrate:

  1. The Defense of Marriage Act (DOMA), section 3, was declared unconstitutional
  2. Proposition 8 defenders lacked “standing” which cleared the way for Legal Gay Marriage in CA

We also celebrated because Same-Sex Marriages (SSM) had just been allowed to resume again after a long break between 11/5/2008 through 6/27/2013.

This year, we have many reasons to celebrate, let’s call them “milestones achieved”.

We still have some mountains left to climb before the SSM “playing field” matches the “playing field “ of married opposite-sex couples.

Perspective:

The right to SSM is important for many reasons. For example, Wells Fargo issued a study in June 2014, in which the top 3 rights and benefits were listed for those surveyed:

  • Healthcare decision making rights 61%
  • Insurance and healthcare coverage 58%
  • Inheritance rights 56%

Health care decision-making can affect the quality of life. Insurance, healthcare coverage, and inheritance rights, all have a significant effect on the “financial equality” of life.

These rights and many others are becoming available to those that can legally marry their same-sex partner.  T

Today, SSM rights and benefits look more like a patch-work quilt across the United States as compared to those enjoyed by opposite –sex married couples who begin to enjoy their benefits, often as soon as they say, “I do”.

There has been tremendous progress and numerous changes since we celebrated San Diego Pride last year. Milestones to celebrate now include:

Same-Sex Marriage is fast becoming a reality for more people:

  • 19 states & the District of Columbia have Legal Same-Sex Marriage and 31 states have Same-Sex Marriage Bans
  • 12 states have had gay marriage bans overturned and appeals are in progress
  • 8/29/13 All Legal Same- Sex Marriages will be recognized for federal tax purposes as per the U.S. Department of Treasury
  • 9/16/13 effective date for Revenue Ruling 2013-17 which reads: “that for federal tax purposes, the Service adopts a general rule recognizing a marriage for same-sex individuals that was validly entered into a in a state whose laws authorize the marriage of two individuals of the same-sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.”
  1. This opened the door to file original returns, amended returns, and claims for credit or refund for any overpayment of tax, provided that the applicable limitations period was still open under section 6511
  2. Couples can “pick and chose”, by year, which return, if any, they chose to amend, as long as the window is still open. Big return? Amend. Owe? Skip it.
  3. The window to amend the 2010 return, generally, expired on 4/15/14
  4. The 2011 1040 return can be amended until 4/15/15
  5. The 2012 1040 return can be amended until 4/15/16

Earlier this week, I attended an IRS DOMA seminar, which was introduced to about 300 tax professionals as “DOMA is about money, it has nothing to do with sex”.

SSM, is partially about money. The Windsor  (DOMA) case was about inheritance rights between spouses.

  • Federal tax law allows a deceased spouse to leave their assets, including a home, to the other spouse, without incurring estate tax. The Estate Tax Rate is 40%.
  •  The DOMA ruling resulted in Windsor being owed an IRS refund of $363,053 for the estate tax she had paid

The Estate Tax is a tax on your right to transfer property at your death.

  • Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse
  • 6/20/14, the Social Security Administration issued guidelines on eligibility for spouse-based retirement and survivor benefits, Medicare, and SSI benefits
  • 7/16/2014, the Connecticut Supreme Court rules that a Lesbian Widow has legal rights that predate Marriage Equality in the state.

Mountains:

  • SSM couples are unable to receive Social Security Spousal Benefits if they were married in one of the states that allow same-sex marriage but live in a restrictive state (reference Bankrate Retirement Blog 7/1/14)
  • Veterans benefits also are restricted for those living in states that do not allow same sex marriage (same reference as above)
  • The right to inherit pension benefits could fall under the “it depends” category. A recent 6/2/14 article about the Bayer Corporation provides some insight
  • Family Medical Leave Act does not cover same-sex spouses. Some employers grant this right to their employees and kudos to them.
  • Nationwide, there is not a federal law against LGBT workplace discrimination. A bill to accomplish that goal, the Employment Non-Discrimination Act, passed the Senate last year but has not yet been taken up by the House

In closing, as an American, I believe that all American’s should have the same rights and protections, under federal law.  The financial “playing field” should be the same regardless of whom you love and where you live in the United States.

Discrimination should be something all citizens do not have to fear or endure.

My name is Deb Fox and I am the proud sister of two gay brothers and multiple LGBT friends. I am an advocate and an ally. I believe in equality and am trying to do my part to make a difference, here now, today, and tomorrow.

Deb Fox is working to make a difference in peoples lives, hearts, and wallets. Although she earned her CPA in 1997, she is not currently practicing as a CPA. She does use her knowledge to help others protect their financial health and is available for side-by-side, remote, or mobile appointments.

 

Defense of Marriage Act is Dead. Now What?

Credit: Getty Images

Credit: Getty Images / SAN FRANCISCO, CA – JUNE 28: Supporters applaud as same-sex couple Sandy Stier (2R) and Kris Perry (R) prepare to get married at San Francisco City Hall by California Attorney General Kamala Harris on June 28, 2013 in San Francisco, California.

My name is Deb Fox and I am a CPA and this is my first blog post. As a CPA I was aware of the financial inequalities created by the Defense of Marriage Act (DOMA) and I felt that it was wrong. I was elated to learn that the Supreme Court of the United States agreed with me.

I have the unusual blessing of having not one, but two gay brothers. One is my younger brother; he and his partner have been together for 13 years and they live in San Diego. The other is my older stepbrother; he and his partner have also been together for many years and live in Orlando, Florida.

Our parents are in their early 80’s and have been great role models for all of us. They have always been accepting of my brothers and their relationships. Our family is very close and we enjoy our time together as much as possible. We are fortunate to be blessed by loving and supportive relationships. This post is dedicated to my brothers and to all those that celebrate this victory with me.

A brief history of DOMA & a glimpse into what it means now for the 130,000 same-sex couples that are legally married living in the current 13 states and in the District of Columbia:

DOMA History:

  • In 1993, the Supreme Court of Hawaii, ruled that the state needed to show a “compelling state interest” in disallowing gays and lesbians from marrying
  • The case turned marriage into a possibility of obtaining the same rights of partnership as heterosexuals
  • In 1996 DOMA was signed into law, which restricted federal law from recognizing any unions between two persons who were not a man and a woman. The rule also said that no state had to accept any other states definition of marriage
  • On 6/26/13, the U.S. Supreme Court declared DOMA (section 3) unconstitutional .The federal government cannot discriminate against married lesbian and gay couples for the purposes of determining federal benefits and protections
  • States can still define marriage (section 2). The IRS will provide guidance about what happens if you are in a non-same sexed marriage recognition state

By striking down DOMA this now means that same-sex couples who are married in the 13 states and DC where same-sex marriage is legal are now “qualified” (spouse related) to receive:

Federal Benefits:

  • Receive Social Security, Medicare, & Disability Benefits
  • Receive Veterans & Military Benefits
  • Receive Cobra health insurance benefit continuation for your spouse
  • File Married Filing Joint or Married Filing Separate if you are married on 12/31/13

Employment Benefits:

  • Not be taxed by your employer for the health care benefits provided for your spouse
  • Take Family Medical Leave for your spouse
  • Receive wages and retirement plan benefits for deceased spouse

Gift/Estate Tax:

  • Make unlimited tax-free gifts to each other as long as the receiving spouse is a U.S. citizen
  • Leave your assets to your spouse without incurring estate taxes (Edie Windsor)

Congratulations to those that have been married for years & have not had the rights or the benefits as those heterosexual couples that obtained them when they spoke “I do”.

There is a lot to be considered with this recent decision by the Supreme Court which is why I have limited this initial post to the 2013 tax year. The IRS will soon let us know if we need to consider the tax implications retroactively – 3 years back or not.

But for now my friends, this is the time for you to:

  • Enjoy the 1,138 spousal benefits provided by the federal government – if you are in a same-sex marriage and living in a location that recognizes your marriage
  • Consider changing your W-4 from single to married.  You need to make sure that you are “withholding” enough to prevent being accessed a penalty
  • Know that the United States tax is a “pay as you go” tax system, which means that tax must be paid as you receive or earn your income. See IRS Topic 306 – Penalty for Underpayment of Estimated Tax
  • Celebrate – it is Pride week here in San Diego! Maybe, I will meet you there?

Happy Pride and Congratulations on a long fought battle.