Many people who braced for the worst from Hurricane Irene this summer wereable to escape damage. Unfortunately, a few individuals were not so lucky. Alot of flooding occurred in Pennsylvania along the Delaware and SchuylkillRivers.
Insurance protects some people from damaging winds and falling debris.However, coverage for floods is a special category of insurance that’s normallyonly held by persons in ordinary river floodplains. The extraordinary damage byHurricane Irene caused individuals to suffer losses not covered by insurance.Fortunately, these people can rely upon someone with IRS tax preparer training forrelief.
Claiming a property loss is an itemized deduction on a tax return. The lossfrom extensive damage is often high enough for taxpayers who don’t normallyitemize deductions to suddenly have a sufficient amount for itemizing. Theunfamiliar forms required to capture the deduction generally require taxpreparation help for completion.
The first step in the casualty loss process is determining the amount. Thisis calculated by figuring the fair market value of property before andimmediately after the casualty. Obviously, the registered tax return preparerwork will exclude any reimbursements from insurance. The casualty losscalculation also requires including any adjustment to property basis taken bythe taxpayer, such as depreciation in past years. Therefore, tax preparer jobs with casualty lossesusually require some extra details for property used in rental, business, oragricultural activities.
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Some victims of Hurricane Irene don’t have to wait until next year to claimtheir 2011 loss. Collecting a prior year tax refund is possible for somecasualty loss claims. This is not the case for all casualty losses. Buttaxpayers with a loss in a federally declared disaster area are permitted toclaim the loss as if it had occurred last year. This special IRS rule allowspeople to amend 2010 tax returns to claim their loss that occurred in 2011.Amending a prior year tax return is an unusual process for most taxpayers. Toassure accuracy, obtaining a professional with paid tax preparertraining is the best avenue.
A really large casualty loss can have an even greater affect than allowing ataxpayer to itemize deductions. A loss could actually exceed a person’s income.The result is a net operating loss. These are especially complex mattersrequiring people to hire someone in the tax preparation industry.
Net operating losses are normally carried back to previous years by amendingtax returns and obtaining refunds. However, taxpayers can elect to carryforward net operating losses. An individual in a federal disaster area causedby Hurricane Irene with a net operating loss on an amended 2010 can carry backthe loss by amending 2009 and 2008 tax returns.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230,we inform you that, to the extent any advice relating to a Federal tax issue iscontained in this communication, including in any attachments, it was notwritten or intended to be used, and cannot be used, for the purpose of (a)avoiding any tax related penalties that may be imposed on you or any otherperson under the Internal Revenue Code, or (b) promoting, marketing orrecommending to another person any transaction or matter addressed in thiscommunication.
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