The Internal Revenue Service has issued guidance to assist Hurricane Katrina, Rita and Wilma victims claiming casualty and theft losses on their individual income tax returns.
The IRS also extended filing deadlines for hurricane victims.
The casualty and theft loss guidance, outlined in Revenue Procedure 2006-32, provides information on several safe harbor methods that individual taxpayers may use in determining their casualty and theft loss deductions under section 165 of the Internal Revenue Code. The safe harbor methods apply to personal-use residential real property and certain personal belongings damaged or destroyed as a result of hurricanes Katrina, Rita or Wilma.
The revenue procedure provides three safe harbor methods that individuals may use to determine the decrease in fair market value of personal-use residential real property. The revenue procedure also provides a fourth safe harbor method that individuals may use to determine the fair market value of certain personal belongings immediately before Hurricanes Katrina, Rita or Wilma.
These safe harbor methods provide individuals, who may have lost their records, or otherwise are unable to determine proper values, with optional ways to determine the decrease in fair market value of personal use residential real property and the pre-hurricane value of certain personal belongings. However, individuals may use the methods of determining these values described in Publication 547, Casualties, Disasters, and Thefts, rather than a safe harbor method.
The IRS is also providing additional time to file 2004 and 2005 individual income tax returns through Oct. 16, 2006 for certain affected taxpayers hit hardest by Hurricane Katrina.
Earlier this year, the IRS granted a postponement through Aug. 28, 2006, for certain time-sensitive acts for Katrina victims in the most severely damaged parishes and counties of Louisiana and Mississippi. The IRS is now granting additional time through Oct. 16, 2006, for these affected taxpayers to file certain individual income tax returns. The additional time to file individual income tax returns applies only for affected taxpayers in 31 Louisiana parishes, 49 Mississippi counties and 11 Alabama counties.
Specifically, the IRS is granting additional time through Oct. 16, 2006, for affected taxpayers to file the following individual income tax returns:
2004 individual income tax returns, originally due on April 15, 2005, for which taxpayers obtained an extension of time to file until Oct. 15, 2005, and for which the previous grant of disaster relief postponed the due date to Aug. 28, 2006.
2005 individual income tax returns, originally due on April 15, 2006, for which the previous grant of disaster relief postponed the due date to Aug. 28, 2006.
This additional postponement of time is not available for any other time-sensitive acts besides these two types of returns.
To ensure that they receive the relief to which they are entitled, the IRS says that affected taxpayers should mark “Hurricane Katrina” in red ink on the top of their returns. In addition, affected taxpayers may identify themselves as eligible for relief by calling the IRS Disaster Hotline at (866) 562-5227.
Legal guidance is available in IRS Notice 2006-56. A full listing of the affected counties is also described on www.IRS.gov, News Release IR-2006-30 and Notice 2006-20.
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