How to Claim Federal Hurricane Tax Relief

When a major hurricane strikes, the federal government may provide special tax assistance to individuals and businesses in the affected regions. The Internal Revenue Service (IRS) establishes these relief measures to help ease the financial burden during a difficult recovery period.

Determining Eligibility for Relief

The trigger for federal tax relief is the President designating an area as a “federally declared disaster area.” This declaration, often made after a request from the state’s governor and a FEMA damage assessment, allows the IRS to implement special tax provisions for the identified counties or parishes. To confirm eligibility, you must verify that your principal residence or place of business is within a designated zone by checking the official list on the IRS’s “Tax Relief in Disaster Situations” webpage or FEMA’s website.

Beyond residing in the area, the IRS also defines “affected taxpayers” to include others who may qualify. This can include relief workers from recognized organizations assisting in the disaster area. It may also extend to individuals whose records necessary to meet tax deadlines are located in the disaster area, even if their home or business is not.

Key Types of Individual Tax Relief

Tax Filing and Payment Postponements

One of the most immediate forms of relief is the automatic postponement of certain tax filing and payment deadlines. For taxpayers whose principal residence or business is in the disaster area, the IRS automatically extends the due dates for filing returns and making tax payments that fall within a specified period. This relief requires no action from the taxpayer, as the IRS identifies those eligible based on their address.

These postponements apply to various deadlines, including individual income tax returns and quarterly estimated tax payments. For example, if a hurricane strikes before the October 15 extension deadline, that deadline would be pushed back. The specific new deadline is announced by the IRS for each disaster.

Deducting Personal Casualty Losses

Individuals who suffer property damage from a hurricane may be able to deduct their unreimbursed losses as a personal casualty loss. A casualty loss is damage to property resulting from a sudden event like a hurricane. For tax years 2018 through 2025, this deduction for personal-use property is restricted to losses occurring in a federally declared disaster area.

This provision allows taxpayers to reduce their taxable income by the amount of the loss not covered by insurance or other reimbursements, and requires careful documentation.

Favorable Rules for Retirement Plan Funds

Special provisions are often available for accessing funds from retirement plans like 401(k)s and IRAs to cover recovery costs. These are known as “qualified disaster distributions,” and they waive the typical 10% additional tax on early withdrawals for individuals under age 59 ½. The SECURE 2.0 Act established provisions allowing for distributions up to $22,000 per disaster for those who sustained an economic loss.

Another benefit is the ability to spread the income from the distribution over a three-year period for tax purposes. Individuals also have up to three years to repay the distribution to a plan or IRA, treating it like a rollover and avoiding the tax consequences. Some rules also permit increased loan limits from certain employer-sponsored plans.

Required Information and Calculations for Claims

For Casualty Losses

To claim a casualty loss, you must first calculate the deductible amount. The loss is the lesser of your property’s adjusted basis (its original cost plus improvements) or the decrease in its fair market value caused by the hurricane. From this amount, you must subtract any insurance or other reimbursements you receive.

The final deductible amount depends on how you file. If you itemize deductions, you must reduce the loss by $100 per casualty, and your total net casualty loss is only deductible if it exceeds 10% of your adjusted gross income (AGI). If you take the standard deduction, you may claim the loss as an additional deduction, but it is reduced by $500 per casualty, and the 10% AGI rule does not apply.

You will need documents to substantiate these figures, such as:

• Purchase receipts
• Records of improvement costs
• Pre- and post-hurricane appraisals
• Repair estimates
• Insurance settlement statements

This information is compiled and reported on IRS Form 4684, Casualties and Thefts. You must also include the FEMA disaster declaration number on the form to validate your claim.

For Retirement Funds

To use the favorable rules for retirement plan withdrawals, you must show the withdrawal is a “qualified disaster distribution.” This requires that your principal home was located in the disaster area and that you sustained an economic loss because of the hurricane. A qualified disaster distribution must be made during a specific window that begins on the first day of the disaster’s incident period and ends 180 days after the later of that start date or the date of the disaster declaration.

You will report these distributions and any repayments on Form 8915-F, Qualified Disaster Retirement Plan Distributions and Repayments. This form allows you to report the total distribution and elect to spread the taxable income over three years or report it all in the current year. If you later repay the distribution, you will file an amended return using Form 1040-X for the affected year(s) to claim a refund of the taxes paid.

Step-by-Step Process for Claiming Relief

After gathering documentation and completing calculations, you must properly file your tax return. To ensure the IRS identifies your return as disaster-related, write the official FEMA disaster designation name and number at the top of your Form 1040. This alerts processing agents to apply special considerations.

The completed forms detailing your claims must be attached to your tax return. For a casualty loss, you will attach Form 4684. If you have taken a qualified disaster distribution from a retirement account, you must include Form 8915-F.

A unique option for disaster-related casualty losses is the ability to claim the loss on the tax return for the year immediately preceding the hurricane. This is done by filing an amended return, Form 1040-X, for that prior year, which can result in a quicker refund. To make this election, you would prepare Form 4684 for the disaster year but attach it to the Form 1040-X for the prior year.

Once your return is filed, the IRS will process it. If you are due a refund from a casualty loss deduction or other relief, it will be issued through direct deposit or a paper check.