Natural disasters touch millions of Americans each year. For many, the natural disaster will translate into a financial disaster, particularly if the damage is not fully covered by insurance. Here are a few tips that may help you rebuild your financial life after a natural disaster.
Take photographs of the damage. It is important to document the damage to your home and personal property as soon as it is safe to do so. Your photos will help substantiate your claims for insurance, assistance, and tax breaks.
Report your loss to your insurer. Contact your insurance company as soon as possible to report how, when, and where the damage occurred. Your insurance company will typically send you the forms necessary to complete your claim.
Keep your receipts if you need to relocate. You may need them to document a claim with your insurance company for additional living expenses that you incur as a result of the disaster.
Apply for federal assistance. Federal aid programs may help cover some of your losses that are not covered by insurance.
Following a federally declared disaster, FEMA may provide grants to individuals for temporary housing and home repairs needed to make your main home safe, sanitary, and functional. Keep in mind that the grants are only intended to help cover critical expenses that cannot be covered in other ways; they are not intended to restore your home and property to its pre-disaster condition. FEMA may also refer you to the Small Business Administration (SBA) for a lowinterest disaster assistance loan. These loans are available to qualified homeowners, renters, businesses, and non-profit organizations to repair or replace property that is damaged or destroyed in a federally declared disaster.
Renters and homeowners may borrow up to $40,000 to repair or replace personal property, such as furniture, appliances, clothing, and vehicles. Homeowners may borrow up to $200,000 to repair or replace their main home to its pre-disaster condition. The loan amount is limited to the amount of your uninsured loss.
Second homes and vacation properties are generally not eligible for SBA loans unless they are qualified rental properties.
Businesses and private non-profit organizations may borrow up to $2 million to rebuild and replace equipment, inventory, and other business assets damaged or destroyed in a federally declared disaster. They may also be eligible for economic injury loans if they are located in the disaster area and suffered economic injury as a result of the disaster.
You can apply for federal assistance online at www.disasterassistance.gov, by webenabled mobile device at m.fema.gov, or by calling 1-800-621-FEMA(3362). Don’t wait too long to contact FEMA. You typically will have just a few months after the disaster to file for federal assistance and loans.
Other programs may also provide assistance. For example, disaster unemployment assistance may be available for people who are out of work due to a natural disaster. The USDA Rural Development may make emergency loans to farmers and ranchers affected by the disaster. Banks that are FDIC members may permit early withdrawal of time deposits, such as CDs, without penalty. The IRS may postpone due dates for taxpayers in disaster areas, providing them with a little extra time to file and pay taxes before penalties begin to kick in.
Deduct unreimbursed losses. If you are not fully reimbursed by insurance or other sources for damages that your property incurs in a natural disaster, you may be able to recoup part of your loss by claiming a casualty loss deduction on your federal income tax return.
You can only deduct the part of your loss that was not covered by insurance or other sources. You must also reduce your loss by $100 and then by 10% of your adjusted gross income to determine the amount of your deduction. Figuring the amount of your deduction can be tricky, so please consult your tax advisor for help in this area.
If your loss was from a federally declared disaster, you can either claim the deduction on the tax return for the year the disaster occurred or the year immediately preceding it. For example, losses for Hurricane Sandy (an October 2012 disaster) may be claimed on your 2012 or 2011 tax return, giving you the ability to choose the year that offers you the greater tax benefit.
Seek professional advice. Natural disasters can have a great impact on your finances. Please consult your tax advisor about how to handle any losses or gains you may have realized as a result of a disaster. Your advisor can fill you in on the details regarding casualty losses and gains and help you develop a strategy for dealing with them.