Can the IRS be penalized for being late?
The agency finally came out with guidelines for people with losses due to Hurricane Wilma. We're two months past The April 15th filing deadline.
Months after Florida taxpayers struggled with the issue of how to deduct property losses in the wake of Hurricane Wilma, the Internal Revenue Service Monday issued guidelines on the subject.
The notice said the IRS wouldn't challenge the value individuals put on their return for the loss of personal residential real estate and belongings so long as they follow one of the "safe harbor" methods the IRS outlined in Revenue Procedure 2006-32.
Though weeks past the April 15 tax filing deadline, the IRS notice still may be helpful to some taxpayers. IRS spokesman Michael Dobzinski said the notice could be useful to those who filed an automatic six-month extension for their 2005 tax returns. Their returns are not due until October.
Also "if you think you've erred, you could file an amended return," for 2005, Dobzinski said.
I make a living doing tax work. Right now I have eleven clients on extension waiting essentially for the IRS to get off their duffs and issue guidelines. These should have come out last January.
Then what do you expect from a Knucklehead agency?
The IRS broadly allows taxpayers to deduct casualty losses based on a decrease in fair market value of a property.I'll be reading up on this as soon as I have free time. Anyone with casualty loss damage due to Wilma, go to your nearest tax professional. This type of loss is much too complicated for either Turbo Tax or self preperation.
The new IRS guidelines provide specific ways to figure the loss amount for victims of Hurricanes Katrina, Wilma and Rita.
For homes and condos, there are three basic methods of calculating the loss. The "Insurance Safe Harbor Method" allows taxpayers to use their insurance company's estimate of the loss. The contractor method is based on what a licensed contractor sets out in a binding contract signed by the property owner.
And in the cost index method, the IRS has established a price index, based on the size of a home, for losses, flooding, structural damage, roof damage and other repairs that taxpayers can use to figure their deduction.
These methods do not cover rental properties.
For personal belongings, the safe harbor method involves taking a replacement price for the item and reducing that by a certain amount depending on how long the taxpayer owned the item.
Many South Florida taxpayers took casualty loss deductions last year because property damage due to Hurricane Wilma was widespread.
The tax rules were liberalized to give hurricane victims a break. Without that special break, a casualty loss has to equal at least 10 percent of the taxpayer's adjusted gross income plus $100 to qualify for a deduction. The taxpayer then subtracts any insurance reimbursement and the result may be an itemized deduction.
For 2005 tax returns only, Congress passed a law that said victims of hurricanes Katrina, Wilma and Rita did not have to meet a 10 percent limit for hurricane damages. Some would be able to deduct every penny of their loss after insurance is subtracted.
The guidelines can be viewed in the IRS Electronic Reading Room at http://www.irs.gov /pub/irs-drop/ and then select rp-06-32.pdf.
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