Tax relief for disaster victims

Earlier today I reminded folks of how they can lend a hand to disaster victims. Here's part two of the process: Getting help directly from the IRS after a catastrophe.

Unfortunately, I've had to discuss this topic way too many times here on the ol' blog (most recently here), but I do so again in the hopes that it might help some folks looking for any and every way to cope with what they've gone through.

When an area is designated a major disaster area by the president, which is the norm after Mother Nature gets nasty, special tax rules apply.

The key one is that you can choose when to claim your disaster losses on your return and that might get you more money, and sooner, from the IRS.

Generally, casualty losses are deductible in the year they occurred. But if the loss is in a presidentially declared disaster area, you can choose to deduct that loss on your tax return for the previous year. The timing is optional in these cases, and you need to run the numbers to see which tax year will get you the most tax money.

For example, Jim sustained major damage in this weekend's tornadoes. When he filed his 2007 return earlier this year, he claimed the standard deduction. However, he can now claim more than that if he itemizes and counts his storm damage as a casualty deduction. By doing so via filing an amended 2007 return (the tax year just prior to the year the damage actually happened), Jim will get a bigger refund as soon as the IRS processes his 2007 Form 1040X.

If, however, Jim finds that it would be advantageous, tax and financially, to wait and claim the losses on his 2008 return next year, he can do that.

I doubt many storm victims are surfing the 'Net for tax advice right now. But if you have friends or family in an affected area, please let them know they have this option.

Tracking tragedies: The IRS keeps a running list of major disasters at this Web page. The presidential disaster areas and other applicable tax information, such as extended filing deadlines, are listed by state. The most recent twisters aren't there yet, but I'm sure they will be soon.

Each specific state page also has a link with addresses and phone numbers of local IRS offices where you can go for personal assistance. More tax information on how to deal with casualties, disasters and thefts is available in Tax Topic 515 and IRS Publication 547.

And Publication 2194, Disaster Losses Kit for Individuals, is chock full of information, from getting copies of old tax returns to a list of documents you'll need to seek federal help to a worksheet to help you value the items you lost.

Finally, FEMA also maintains its own major disaster list here.