Wildfire Tax Tips

If you were among the thousands of Southern California residents affected by the devastating October wildfires, you’re likely wondering how this event is going to affect your taxes.

Thankfully, in disasters such as these, federal and state tax agencies extend a hand up. Here’s what they offer:

Free copies of previously filed tax returns.

The IRS and California Franchise Tax Board say they will waive the usual fees and expedite requests for fire victims. Here’s how to get your copies:

• Federal: Complete IRS Form 4506, Request for Copy of Tax Return (PDF). At the top, write the words “Disaster Designation” in red ink and mail.
• California: Fill out FTB Form 3516, Request for Copy of Tax Return (PDF) and print “Southern California Wildfires 2007” in red at the top. Mail to address specified on the document.

More time to meet some tax deadlines.

For example, taxpayers who owe estimated, fourth-quarter tax payments for the 2007 tax year can pay on or before January 31, rather than the usual due date of January 15, for both federal and state.

Option to obtain an earlier refund

Taxpayers who incurred losses on property that’s underinsured or not insured can choose to deduct those losses on federal and state amended tax year 2006 returns for speedier refunds. Or they can deduct them in 2007.

For federal taxes, see IRS Publication 547, Casualties, Disasters, and Thefts (PDF) and IRS Topic 308 – Amended Returns.

For state taxes, see FTB Publication 1034, Disaster Loss (PDF).

Recovering from a disaster takes time and patience.

Keep in mind:

• It could take many months or several years before you can fully document and assess your property losses.
• You can take a tax deduction on your losses only if they exceed what you will get from insurance and relief agencies. However, it could take a year or longer following the fire before you resolve how much your insurer will pay you.
• Tax-loss deductions won’t replace what you have lost dollar for dollar. They help lower your income and thus reduce your tax bill. Your best bet is to get the most from your insurer.
• To boost your cash flow, estimate the losses you will have after insurance and relief aid, and deduct them from your 2006 taxes, rather than waiting and deducting them for the 2007 tax year. But you will have to file amended returns.

Caution If you deduct a loss that is greater than what you can later document, you could end up owing taxes.

Start Tax Planning Now

Whether assessing damage for your insurance company or for income tax purposes:

• Document the damage by taking extensive photos.
• Prepare an exhaustive list of lost or damaged property. To help you get started, the IRS offers Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook (PDF).
• Have competent appraisers, such as builders, engineers and real estate appraisers, document the value of your property before and after the fire—and put it in writing.

For general fire recovery assistance, visit the State of California’s Rebuild Your Life Web site.

Learn about Intuit’s Southern California Wildfire Recovery Assistance program.

Updated for tax year 2007