TX Tax Preparers and the TX Winter Storm

[msmith7305]

I am a little confused as to the tax deduction available for Texans due to the freeze. It has been declared a federal disaster area (FEMA DR-4586).

I have heard differing opinions as to whether or not this qualifies for the ability of the taxpayer to take a loss (less $500) even if they do not itemize OR if the only deduction available is if you itemize and the loss (less $100) is subject to the 10% AGI limitation.

Opinions?

Thanks

[qbteachmt]

Isn't that a 2021 disaster? Are you working on 2020 taxes?

[msmith7305]

Yes, but a federal disaster loss is allowed in the year of the loss or the preceding year.

Taxpayer choice.

[qbteachmt]

And they already know their total loss?

Read the IRS guidance, such as:

https://www.irs.gov/newsroom/irs-announces-tax-relief-for-texas-severe-winter-storm-victims

"Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. See Publication 547 for details.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684, Casualties and Thefts PDF and its Instructions. PDF

Affected taxpayers claiming the disaster loss on a 2020 return should put the Disaster Designation, "Texas – Severe Winter Storms," in bold letters at the top of the form. Be sure to include the disaster declaration number, FEMA 4586, on any return. See Publication 547 for details."

[qbteachmt]

Here's the Tax Topic:

https://www.irs.gov/taxtopics/tc515

[BobKamman]

But can you say "Text the Texas Tax Talk" 10 times real fast?

[qbteachmt]

I know insurance companies do not make settlements this quickly, nor can damage have been repaired so quickly that the amount is known, already. Don't you still have people without water due to burst pipes, dropped ceilings, etc?

[msmith7305]

Well, some people do know their damage. Also, no one has to file an insurance claim if the loss is less than the deductible.

I just want to know which type of deduction they are qualified for. Tax returns aren't due here until June 15th to begin with.

If Texans are stuck with the 10% rule and having to itemize, I will have a lot of clients who will not have losses in excess of 10% of AGI. I can tell these clients not to worry about keeping the details.

However, if they are entitled to the qualified disaster loss rule, then most clients will qualify and they need to get all the documentation and receipts together so it can be applied to their return.

At whatever time they file.

[qbteachmt]

"I just want to know which type of deduction they are qualified for."

Yes, I gave that link.

[Suzanne2]

So is the Texas storm just a federal declared disaster or a "qualified" federal declared disaster? 

[qbteachmt]

@Suzanne2 

Did you follow the links provided in this topic, to read what "qualified" means to read about disaster issues as relates to tax filings?

[Suzanne2]

Yes, Biden did declare it a federal emergency disaster under the Stafford Act  so it should be a qualified disaster but of course our friends at the IRS have not updated the instructions to include it or given specific guidance yet of course.    

[qbteachmt]

"Biden did declare it a federal emergency disaster under the Stafford Act"

You have to read the Dates of applicability for the specific disaster declaration and type.

The IRS doesn't need to issue a bunch of specific guidance, typically. They have Disaster Guidance already. Since they are not in charge of Disasters, they have relative guidance that will apply. FEMA controls Specific guidance.

It would probably be more help to you, if you don't find what you want from FEMA, IRS, and other resources, to specifically ask your detailed question on the forum. Otherwise, you will get general guidance. You would need to read and look up things for your client, anyway, of course.

Because what Applies and who Qualifies are not the same for every given disaster. Someone on the forum asked about taking Fraud as a disaster loss, simply because it fell in the timeframe of coronavirus, but in that example, it is not attributable to the disaster declaration or virus impacts.

[Suzanne2]

According to the cover of pub 547 a qualified disaster loss is expanded to include one declared by Presidential declaration dated between 1-1-20  and 2-25-21 ( Biden declared 2-19-21)  However to qualify the disaster's incident period must end no later than 1-26-21. Texas was 2-11-21 to 2-21-21. So according to this at this time Texas is not a qualified disaster and is subject the 10 percent rule.   

[BobKamman]

What is your question?

If it is whether the loss can be claimed on a 2020 return -- yes.

To claim a loss on the preceding year’s return, a taxpayer must make an election on the 2020 tax return by completing part I of Section D on the Form 4868. This election to treat the disaster loss as if it had happened in the preceding year must be made within six months of the original due date of the return, meaning any losses claimed on the 2020 tax return for a disaster that actually occurred in 2021 must be filed by October 15, 2021.

Or is it whether that 10% floor on Form 4684 applies?

As you found in Pub 547, "However, in order to qualify under this expansion, the major disaster must have an incident period beginning between December 28, 2019, and December 27, 2020 (inclusive). Further, the major disaster must have an incident period ending no later than January 26, 2021."

These dates have to be updated by legislation and apparently the Texas delegation has turned a blind eye to the need for negotiation on that update. 

[Suzanne2]

yes, the question was "Which of the three federally declared disasters does it fall under? Is it the qualified disaster and thus not subject to the 10% floor with the $500 deduction?

[shampagne]

Form 4684 Instructions:

Qualified disaster losses. A qualified
disaster loss also includes an individual's
casualty or theft loss of personal-use property
that is attributable to:
• A major disaster declared by the President
under section 401 of the Stafford Act in 2016; . . . 

[StephanieS]

I have the same question - were casualty losses sustained from the Texas storms subject to the 10% AGI limitations? 

I don't see where legislation changed the date past an incident period of January 26, 2021, so it seems that the Texas storms would have a 10% AGI limitation.

However, I see editorials saying there isn't a 10% AGI limitation.  And when I input it into ProSeries with a 2/11/2021 date, ProSeries is allowing it (but that could be input error on my part).  

[qbteachmt]

"And when I input it into ProSeries with a 2/11/2021 date"

Which is later than the provision.

"I don't see where legislation changed the date past an incident period of January 26, 2021, so it seems that the Texas storms would have a 10% AGI limitation."

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/is-the-texas-disaster-f...

Read that topic to see what was reviewed and how the CAA did not change anything, as pointed out. If you know of a bill newer than CAA that makes a change, please post that info here.