Reconstructing tax & other records after a natural disaster
Wednesday, September 06, 2017
This post was reviewed and updated on Friday, Aug. 30, 2019.
Maybe you didn't think the hurricane's flood waters would reach your neighborhood. Or maybe you just never kept copies, either paper or digital, of your financial and tax records.
Now, however, you find you're among the millions dealing with a disaster's aftermath.
It happens year after year after year, like in 2017 when Hurricane Harvey destroyed much of the Texas Gulf Coast and the Lone Star State's largest city. Rebuilding there is still ongoing.
In 2018, we had major Hurricanes Florence and Michael ravage parts of the Eastern Seaboard and deadly wildfires literally wipe out California communities.
Now in 2019 we're awaiting arrival of Hurricane Dorian, the first major tropical system of this hurricane season, which could cause serious damage to Florida.
To recover from these types of major natural disaster damage, you need that prior tax and other documentation. The Internal Revenue Service has some suggestions — and they are this week's Weekly Tax Tip — on how to reconstruct these necessary records after a natural disaster.
Tax records: If you file a disaster loss claim, especially if it's a major catastrophe and you want to claim it on your prior year's filing, you'll need that earlier tax return. Here are some ways to get the info.
Get free return transcripts immediately by visiting the Get Transcript tool on IRS.gov.
You also can request transcripts via your smartphone with the IRS2Go mobile app.
If you prefer to use your phone as, well, a phone, you can order transcripts by calling toll-free (800) 908-9946 and following the prompts.
To get a transcript, which is a computer printout that shows most of the line items found on your tax return when you filed it, of previous years' tax returns by mail, file a Form 4506-T, Request for Transcripts of a Tax Return.
To get copies of your actual past returns by mail, file Form 4506, Request for Copy of Tax Return.
If you're filing either Forms 4506-T or Form 4506, write the appropriate disaster designation, such as "HURRICANE HARVEY," in red letters across the top of your request. This will expedite IRS processing and waive the normal user fee.
Personal residence and real property: Most claims, either tax or insurance, will be in connection with damage to your home or other real estate, aka real property. This also includes the land as well as generally anything built on, growing on, or attached to land.
Take photographs or videos of the real estate as soon after the disaster as possible. This helps establish the extent of the damage.
Contact the title company, escrow company or bank that handled the purchase of the home to get copies of appropriate documents. Real estate brokers may also be able to help.
Use the current property tax statement for land-versus-building ratios if available. If they are not available, owners can usually get copies from the county assessor’s office.
In making a claim, it's your home's fair market value (FMV) that's important. Establish a basis or FMV of the home by reviewing comparable sales within the same neighborhood. This information can be found by contacting an appraisal company or visiting a website that provides home valuations.
Check with the mortgage company for copies of appraisals or other information they may have about cost or fair market value in the area.
Review insurance policies, as they usually list the value of a building, which establishes a base figure for replacement value insurance. For details on how to reach the insurance company, check with your state insurance department.
If improvements were made to the home, contact the contractors who did the work to see if records are available. If possible, get statements from the contractors verifying their work and cost.
Also get written accounts from friends and relatives who saw the house before and after any improvements. See if any of them have photos taken at get-togethers.
If you got a loan to make your home improvements, get paperwork from the institution that issued the loan. The amount of the loan may help establish the cost of the improvements.
For inherited property, check court records for probate values. If a trust or estate existed, contact the attorney who handled the estate or trust.
If no other records are available, check the county assessor’s office for old records that might address the value of the property.
Personal property: It's amazing how much stuff we accumulate over the years. That makes it difficult to reconstruct records showing the fair market value of much personal property. But just like with real estate, personal property FMV is key to tax claims on these losses.
To help you reconstruct or determine the value of your lost or damaged personal property, the IRS has some suggestions.
- Look on mobile phones for pictures that were taken in the home that might show the damaged property in the background before the disaster.
- Check websites that can help establish the cost and fair market value of lost items.
- Support the valuation with photographs, videos, canceled checks, receipts or other evidence.
- If items were purchased using a credit card or debit card, contact the credit card company or bank for past statements. Credit card companies and banks often provide user’s access to these statements online.
If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted:
- Draw a floor plan showing where each piece of furniture was placed – include drawers, dressers and shelves.
- Sketch pictures of the room looking toward any shelves or tables showing their contents.
- These do not have to be professionally drawn, just functional.
- Take time to draw shelves with memorabilia on them.
- Be sure to include garages, attics, closets, basements and items on walls.
Vehicles: Autos and other vehicles are particularly hard hit in natural disasters. They often are parked outside. Even if they are in a garage, it generally is not as strong a structure as the rest of the house.
In determining tax relief for vehicle disaster damages, the IRS points to several resources that can help determine the current fair market value of most cars on the road. They are:
These resources are all available online (just click the links above) and at most libraries.
You also can call the dealer where you bought the car and ask for a copy of the contract. If this is not available, give the dealer all the facts and details, and ask for a comparable price figure.
If you're making car loan payments, check with the lender.
Business records: Individuals aren't the only ones who suffer during natural disasters. Businesses in the storm areas also sustain hits. These companies and their owners also can claim their losses, as long as they have the substantiation.
Here are some ways to get or recreate the necessary documentation.
Create a list of lost inventories, get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.
Check mobile phones or other cameras for pictures and videos taken of buildings, equipment and inventory.
For information about income, get copies of bank statements. The deposits should closely reflect what the sales were for any given time period.
Get copies of last year’s federal, state and local tax returns. (See the first section of this post.) This includes sales tax reports, payroll tax returns and business licenses from the city or county. These will reflect gross sales for a given time period.
If there are no photographs or videos available, sketch an outline of the inside and outside of the business location. Then start to fill in the details of the sketches. For example, for the inside of the building, record where equipment and inventory was located. For the outside of the building, map out the locations of items such as shrubs, parking, signs and awnings.
If the business was pre-existing, go back to the broker for a copy of the purchase agreement. This should detail what was acquired. If the building was newly constructed, contact the contractor or a planning commission for building plans.
Obviously, it's better to think about all this before a disaster hits. But sometimes life doesn't give us that luxury.
So if you've suffered natural disaster related losses and don't have all the records you need, give these suggestions a look.
And if you've been spared, make time now to develop a disaster recovery plan so that you can implement it as soon as possible when you need it.
You also might find these items of interest:
- The importance of taking a pre-disaster inventory
- Home basis, not market value, key amount in calculating disaster loss tax claim
- Storm Warnings: Preparing for, recovering from & helping those affected by natural disasters
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