Hurricane Sandy Tax Relief

The Internal Revenue Service recognized that Hurricane Sandy victims may have encountered time and financial constraints that prevented them from immediately meeting their tax obligations. Several tax provisions were put in effect to help taxpayers who live or do business in areas affected by this storm — but a number of those provisions expired on Feb. 1, 2013.

If you lost property or other assets located within an affected county as a result of Sandy, you’re eligible to claim a casualty loss on either your 2011 or 2012 tax return.

If you choose to include the loss on your 2011 return and are entitled to a tax refund, you’ll get your funds more quickly than if you claim the loss on your 2012 return, since those returns aren’t due until April 2013. However, if you wait to claim the loss on your 2012 return, you might receive a larger benefit if your income was reduced as a result of Hurricane Sandy.

If you already filed your 2011 return and want to claim a loss for 2011, you can amend your return by filing Form 1040X. Qualified losses include any personal or business property that you did not receive insurance or other reimbursement for.

The IRS normally charges a fee to provide you a copy of a return you filed in a prior year. However, Sandy victims are eligible to receive these copies more quickly and for free.

To request copies of a previous tax return, complete IRS Form 4506-T and write “Disaster Designation,” along with the name of your state and county, in red ink at the top of the form. IRS agent Maria Alvarez advises taxpayers who are contacted concerning collection of a tax balance owed (or an audit) to “respond and let the IRS know how you have been affected by Hurricane Sandy. In some cases, the IRS may be able to extend deadlines to provide information or payments without additional repercussions.”

If you’re a Sandy victim and received qualified disaster relief payments from your employer, the IRS will not require you to include those amounts in your taxable income, and employers should exclude disaster relief payments from your W-2. Qualified disaster relief payments can be used to pay for food, shelter and other personal and family expenses, as well as for the repair or replacement of your home and its contents to the extent that such losses were not covered by insurance.

The IRS extended the deadline to Feb. 1, 2013 for filing returns and making tax payments for individual returns with a due date between Oct. 26, 2012 and Feb. 1, 2013 (including the fourth-quarter individual estimated-tax payment that would normally have been due on Jan. 15, 2013). Late filing and payment penalties for items due within this time period were automatically waived for those who live within a declared Hurricane Sandy disaster area. Unfortunately, most individual taxpayers didn’t qualify for this relief because 1040 tax returns, including those on extension, were due before Sandy hit. However, those who were eligible for additional time on an extension because they were out of the country or served in a combat zone, were able to qualify for this relief.

• Connecticut: Fairfield, Middlesex, New Haven, and New London counties, and the Mashantucket Pequot Tribal and Mohegan Tribal Nations
• Rhode Island: Newport and Washington counties
• New York: Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester counties
• New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties

Businesses affected by Hurricane Sandy also received an extension until Feb. 1, 2013 for filing and payment. Alvarez says this included “any return a business owner is required to file or pay between October 26, 2012 and February 1, 2013, and any employment or excise tax deposits a business is required to make between October 26, 2012 and November 26, 2012.” Business owners were automatically relieved of late-filing and failure-to-deposit penalties plus interest charges for returns and deposits not provided to the IRS during these time periods.

The IRS also allowed retirement plan administrators to make loans or hardship distributions to victims of Sandy (through Feb. 1, 2013). These rules also extended to plan participants who may not live in affected areas, but used the distributions to help family members who live or work in affected areas.

For loans taken against retirement plans, no early-withdrawal penalty was assessed, and the regular six-month ban on contributions following the loan disbursement was waived. For hardship distributions, however, a 10-percent early-withdrawal penalty applied.