Hurricanes Harvey, Irma, Jose and Maria all made their impact felt back-to-back. Then in 2022, we had
Hurricanes Ian and Nicole, hit many states. Images of flooded streets, devastated homes and shattered families
tugged at your heart. The year 2017 witnessed many disasters nationwide that spurred Congress to pass the
“Disaster Tax Relief and Airport and Airway Extension Act”. Due to this Act, many changes have occurred that
greatly benefit taxpayers who experience disaster losses.

Rebecca’s family of six, residing in Houston, was severely affected by the category 4 storm that hit Texas. They
lost their house and many valuables. While monetary compensation can never make up for their loss, but it can
at least help them in slowly regaining normalcy, especially after the crippling effect of the devastating disasters.

If you experience damage from a storm, theft, auto wreck, fire, flood, earthquake, break in, terrorist event or
other disaster, you need to contact the police and your insurance company. Once you file a claim, your next step
is to total the amount of your losses. After your insurance company reimburses you (if any), your Casualty Loss
is what is left over.

The tax relief or benefit of a casualty loss is an Ordinary Tax Loss on your tax return and provides tax relief that
may PAY YOU in your time of need. This type of loss is an additional tax deduction, on top of any standard
deduction you might take, and adds extra expenses to any itemized deductions. While the disaster is terrible and
may be devastating at the time, it’s heartening to know that the IRS gives you some relief on any taxes you
might otherwise pay.

If the disaster is in a Federal Declared Disaster Area or Zone, you will also qualify for a delay of time on when
your tax returns and tax payments must be filed or paid. Each disaster will have different time frames, but you
could get up to an extra year to have to file returns. See Azmoneyguy or your tax professional for these time
specifics.

Another relief you can benefit from is that if you need to withdraw funds from your retirement account, you will
not be hit with an early withdrawal penalty! This will save you 10% of what you have withdrawn (that’s the
amount of the early withdrawal penalty, normally).

Those taxpayers who might be able to claim Earned Income Tax Credit or Child Tax Credit (EITC and CTC)
also receive some relief, for the disaster tax year. As an example, individuals affected by Hurricanes Ian and
Nicole, who earned less income in 2022 than 2021, can use the 2021 amounts reported, to claim EITC or CTC
in 2022.

Also, you might be able to take the current loss backward and amend your past tax returns for immediate
refunds. For example, a loss that occurs in 2023 can be listed on your amended 2022 tax return, so that you can
immediately file for a refund and use the money to help you get back on your feet. Use IRS forms 4684 and
1040X to amend past returns. Or you may use the amount of your disaster loss on your current year tax return,
on IRS form 4684 if it has not been filed yet.

It is possible for a casualty loss to use up all income for the past year, plus your current year. This is known as a
Net Operating Loss (NOL). If the loss is large enough, you may have no taxes for the past year, the current
year, or some future years, depending on how great the loss is compared to your income. If casualty losses
exceed your income, you have a loss in that year and could pay no taxes. And you get to carry excess losses
backwards or forwards, to help you get back on your feet.

Here are some things to remember:

● Losses can occur for many reasons: theft, fire, storm, auto wreck, earthquake, terrorist event and
other sudden disasters

● The amount of the loss, after insurance reimbursement, is your Casualty Loss deduction

● You can amend your prior years’ tax returns for the current loss you experienced (File IRS forms
4684 and 1040X), or you can use the Casualty Loss in the current year (your choice)

● You may qualify for delayed time to both file returns and pay taxes up to a year after the normal
due date.

● Money withdrawn from retirement accounts will not get hit with the early withdrawal penalty
(10% of the amount withdrawn, usually)

● Those who qualified for EITC and CTC in the past year, might be able to use that income amount
for the current year, to qualify again for extra refunds

● If the amount of loss is great enough to absorb all your income, you have a Net Operating Loss
(NOL) and you can carry the loss forward into future years, until the loss is used (investments that
were stolen by Bernie Madoff in 2008 were carried backward and/or forward if it exceeded current
incomes). These losses helped some taxpayers to not pay taxes for many years, depending on each
person’s circumstances.

● Only disasters declared by the President, qualify for tax relief, stated above. Go to fema.gov and
make sure your state had a declared disaster for the year you are filing for.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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