Tax Credits for Flood Victims

Government assistance for flood victims helps offset the financial hardship of flood damage.

Every year people experience flooding due to natural disasters, excessive rain and hurricanes. While no tax credits exist for victims who experience financial loss after flooding, other options are available to help reduce your tax burden after a flood. Flood victims in a federally declared disaster area receive benefits. Check with the Internal Revenue Service to determine if your county is eligible for tax assistance and the specific help offered for that disaster.

Casualty Losses

You may deduct casualty losses and losses from theft due to the flooding if the losses are not covered by insurance. Losses are usually deducted the year of the flood; however, in some cases you may deduct the loss on the previous year's tax return. Normally you may only claim losses up to $100 or 10 percent of your adjusted gross income. In some cases, as with those affected in the Midwestern disaster areas in 2008, those limits do not apply.

IRA Distribution

As a flood victim, if you meet the requirements set forth by the IRS, you may withdraw up to $100,000 from your IRA or 401(k) without paying the 10 percent early withdrawal tax. You must withdraw funds after the date of the disaster and before the deadline set by the IRS. For example, victims in the Midwestern disaster area from 2008 had to withdraw funds by January 1, 2010. In addition, you must have suffered an economic loss as a result of the disaster and your primary home must have been located within the disaster area at the time of the disaster.

Tax Credits

Currently, the IRS does not offer tax credits specific to victims of flooding. However, you may be able to claim a higher amount on the Earned Income Credit and Child Tax Credit. If your income during the year prior to the disaster was higher than your income the year of the disaster that caused the flooding, you may use the previous year's income to figure your Earned Income and Child Tax Credits, which will result in a higher credit.

Education Tax Credits

If you attended school in the disaster area, you may receive a greater amount on the Hope Credit. As of 2010, the Hope Credit was limited to $2,500. However, victims of the 2008 Midwestern disaster area could claim up to $3,600 on qualified education expenses.

Business Tax Credits

Businesses receive an Employee Retention Credit to help prevent losing employees to other areas and companies. Disaster-area businesses iwith more than 200 employees receive a credit of 40 percent of employee's wages up to $6,000 per employee as of 2008.

In addition, businesses may claim the Employee Housing Credit to help provide lodging to employees who lost their homes in the disaster. As of 2008, businesses could claim 30 percent of the value of lodging, up to $600 per employee per month.

References

• Internal Revenue Service: Information for Affected Taxpayers in the Midwestern Disaster Areas
• Internal Revenue Service: FAQs for Disaster Victims
• Internal Revenue Service: FAQs for Victims of Hurricanes and Other Major Disasters
• Internal Revenue Service: Tax Relief for Victims of March 11 Floods in South Dakota
• Internal Revenue Service: American Opportunity, Hope and Lifetime Learning Education Credits