IRS tips for financial recovery following a disaster

Disasters – including massive storms (like the hurricanes that recently struck the Southeast and Puerto Rico), fires, earthquakes, mudslides and floods – can result in the complete loss of a person’s belongings. In a catastrophic event, everything can be gone in an instant, including:

• Furniture
• Housewares
• Clothing
• Mementos/photos/heirlooms
• Electronics
• Financial and tax records

It is a daunting task, thinking about trying to handle insurance claims, get repairs made, buy new property, and process your grief and shock caused by the loss.

IRS tips

The IRS understands that these situations can be very difficult on everyone involved, and offers some tips for taxpayers trying to prove losses, and rebuild their tax information and property records.

• Take pictures of your losses (broken furniture, water damage, destroyed clothing and housewares, flooded vehicles, etc.) to provide proof for the insurance company. For comparison purposes, you may be able to locate prior photos of these items on your cellphone, in the cloud, on social media albums, on online photo processing sites or in pictures held by other people.
• Contact your title company and mortgage lender to get new copies of your home’s title and mortgage account information. If work was done on the home (a remodel that increased the value, for example), that hadn’t yet been appraised, see if the contractors who performed the work have information regarding it. This can help prove that your home should be repaired to the newer, higher standard instead of the preexisting one.
• Contact your home, auto and life insurers to get new copies of your policy information.
• Get new tax return transcripts. These are offered for free on the IRS website (with the Get Transcript tool) or via phone. They are particularly important for business owners who pay estimated taxes; knowing exactly what you paid earlier will allow you to properly estimate the next payment.
• If inherited property was lost or damaged, check with the probate court or the decedent’s estate attorney for valuation information.
• When vehicles are irreparably damaged, the fair market value of comparable vehicles is available through Kelley Blue Book, Edmund’s and the National Automobile Dealers’ Association.
• For the valuation of household goods, clothing, fixtures and other property purchased with a credit or debit card, contact the card issuer.

The IRS also understands that a disastrous loss can have an impact on your tax liability. It provides an annual guide about credits and exemptions that might benefit those with catastrophic losses. There’s also a “Casualty, Disaster and Theft Loss Workbook” for taxpayers with personal property losses.

Having incomplete or lost tax and financial records could lead to unreimbursed losses, missed exemptions or credits (overpaying), inadvertently taking too many exemptions or credits (underpaying) or even allegations of evasion. If an investigation or audit arises following a disaster, you need an experienced tax attorney on your side to prove your losses and give you advice regarding the best approach to take with the IRS.