With winter storms about to give way to spring thaws and flood-and-tornado season, it's time to protect yourself against being left high and dry by Mother Nature.
Ric Ross, head of public disaster planning for the California Society of Enrolled Agents, who are licensed by the government to help people plan and prepare their taxes, says every homeowner, renter and business owner should take these precautionary steps now:
How to determine property damage: Here's an excerpt from the Internal Revenue Service's Web site on property damage from natural disasters: "If your property is not completely destroyed, to determine your loss from a casualty, you must first figure the decrease in fair market value of your property as a result of the casualty event. "To do this, you must determine the fair market value of your property both immediately before and immediately after the casualty. An appraisal is the best way to make this determination. "Compare the decrease in fair-market value with your adjusted basis in the property. The adjusted basis is usually the cost of the property plus or minus certain adjustments. From the smaller of these two amounts, subtract any insurance or other reimbursement you receive or expect to receive. The result is your loss from the casualty."
l Make an inventory of real, personal and business property in case you have to claim a disaster loss. It's easier to make a list now "than to sit down in the rubble and try to remember a lifetime of purchases," Ross says.
l Make video recordings of every room of your home and office, which let you show possessions and describe them verbally. It's easier than writing down each piece of furniture, every appliance, artwork, toy and the contents of every closet, cupboard and drawer.
l Keep a cardboard storage box filled with financial records at the ready, making sure it's one of the first things carried out and put in the car in case disaster strikes. Photocopies of key document records including wills, deeds, bank account and investment statements should be kept on file with the originals in a safe deposit box.
Business losses generally can be deducted in full from your federal income taxes.
But Uncle Sam isn't as forgiving anymore about letting individual taxpayers write off property losses, and they now must total 10 percent of your adjusted gross income, less $100, after your insurance claims are reimbursed before you can deduct them from your federal income tax bill.
Also, cleanup costs and temporary lodging are not deductible and cannot be claimed in the total.
However, with the Taxpayer Reform Act of 1997, Congress did restore some tax help for people caught up in floods, fires, hurricanes, tornadoes and the like.
The law gives taxpayers hit by officially-declared disasters extra time to file their taxes and to speed up or slow down casualty losses from one year to another, depending on how fast you need the money.
Clint Stretch, head of Deloitte & Touche Washington National Tax Office, notes that casualty loss deductions in federally declared disaster areas likely will be better off to take the tax loss in the year their income is lower.
The 1997 law also makes available low-interest money to rebuild destroyed housing by letting states and localities issue tax-free mortgage bonds that don't carry the usual restrictions that the money go only to low-income first-time home buyers.
"The only up side for homeowners who experience a loss of property due to any type of disaster is that tax breaks are available," says attorney-accountant Mark Luxcombe with tax publishers CCH Inc. in Riverwoods, Ill.
The Internal Revenue Service provides disaster kits that include all the IRS brochures, publications, tax forms and instructions relating to casualty and disaster loss.
The forms are available at IRS walk-in offices nationwide, can be ordered by phone at (800) 829-3676 and are online at www.irs.ustreas.gov.
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