One year later, a look at the implications of Hurricane Ian for homeowners

Article Courtesy of The Herald-Tribune

By Budge Huskey

Published October 25, 2023


Just over two weeks ago we marked the one-year anniversary of Hurricane Ian and the devastating storm surge that led to losses for so many, for which recovery and reconstruction continue. In addition to the significant loss of life, Ianís impact on property was felt far beyond the southernmost Gulf shores to wind and water damage up the coast to Sarasota and Manatee counties.

Ranking among the most consequential weather events in this countryís history, Congress has yet to formally declare it a special natural disaster qualifying for the highest level of tax relief Ė as if we required additional evidence of dysfunction in the House of Representatives and its inability to govern.

Although the full extent of deductibility of established losses in the future is uncertain, considerable taxable benefits remain available today to those truly suffering disaster losses who are willing to navigate the process in their IRS filings.

Natural disasters causing damage losses not declared a special natural disaster may be claimed as a deduction (only the amount exceeding 10% of income in the year claimed, less any amount received from insurance proceeds). Should Congress have acted and removed the 10% rule, the total value loss would qualify. Itís surprising just how many people Iíve met who were unaware of this benefit even when having their taxes prepared by a specialist.

So just how does one establish the decrease in value attributable to Ian? While some suggest a Realtor may provide an opinion, I would strongly recommend an expert appraisal from a member of the Appraisal Institute, or MAI, to be above reproach. Essentially, the appraiser will establish a market value for the property just before the event and an estimate of market value following the event (before repairs or reconstruction) to determine the extent of loss. It would apply to the building structure as well as any loss of value from secondary structures, hardscape, and landscaping. The extent of loss then becomes a deduction against oneís taxable income in the reporting year.

Hereís where it gets interesting: Suppose oneís approved deduction (less the amount representing 10% of income for the year filed and insurance proceeds) results in a revised tax obligation for the filing year that is less than the amount of income taxes paid. In that case, one would qualify for a direct refund of the amount. And because it is a rebate of taxes paid, the funds received are not considered income for reporting purposes. Should the deduction be greater than what may be used in the filing year based on taxes paid, it would establish a Net Operating Loss that may be carried back to prior years or carried forward to future years, whichever is in oneís best interests.

Thereís yet another twist. Ian occurred in 2022, which logically implies the disaster benefit applies to that year. However, one may elect to amend his or her return for the preceding year, 2021, in the event reported income for that year proved lower, thereby affording a more significant benefit.

Filing an amended tax return because of a disaster impact follows the rules for any amended return, meaning that one generally will have three years from the original filing date or two years following when the tax was paid. In the event Ian is declared a special natural disaster, there may be additional leniency in time periods announced. Of course, consulting a tax professional is recommended to verify this information.

One year after Hurricane Ian, I have two wishes for the balance of this year. First, that we be spared another direct hurricane event this season. And second, that the House of Representatives takes a break from its kindergarten antics and begins governing once again on matters of actual importance. You can place your bets on which one is more likely.