As we were waiting for Hurricane Ian to reach us, I was thinking that if it turned out to be as destructive as predicted, IRS would have to extend the upcoming October 17 deadline for taxpayers and preparers who are located here in Florida, as they recently did for storm and flood victims in Alaska and Hurricane Fiona victims in Puerto Rico. Those extensions were until February 15 of 2023.
Fortunately, IRS acted quickly and has issued the same extension of the October 17 deadline for all taxpayers and preparers in Florida since the entire state is part of the federally designated disaster area. That extra time will help ease the stress of having to get a lot of tax returns wrapped up by October 17.
Besides the longer time allowed to prepare and file 2021 tax returns, the status of being a federally designated disaster allows for a very unique tax saving opportunity. Any losses suffered from these recent disasters may be deducted on 2021 tax returns, even though the disaster took place in 2022. It is an excellent way to get tax money back into the hands of the victims much sooner than making them wait another year.
I have prepared several of these kinds of tax returns, where we claimed the losses in the year before the disaster. Most of these were for losses due to earthquakes and wildfires in California. The trickiest aspect to claiming such a deduction is calculating the amounts of the losses so soon after the event happened. We need to factor in how much is expected to be received from any insurance coverage that may apply and come up with the net loss incurred.
A tip for anyone claiming these kinds of losses on their tax returns: I have been able to avoid any IRS challenges to these disaster loss deductions by attaching before and after photographs of the damaged or destroyed properties.
Update 10-5-2022: IRS has extended this same official filing delay (until 2/15/2023) to those who were in the Hurricane Ian targets in North & South Carolina.
Tax Guru - Ker$tetter Letter 