Technology and professional tax preparers experienced in casualty losses are coming to the aid of taxpayers residing in Gulf Coast areas who were affected by the 2005 hurricane season.
Volunteers at the Internal Revenue Service's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs can now refer taxpayers with complex tax issues to participating members of the American Institute of Certified Public Accountants (AICPA) or the American Association of Attorney-Certified Public Accountants (AAA-CPA).
Under a new IRS agreement, CPAs from the two groups will provide free tax return assistance because VITA and TCE volunteers are generally not trained to compute casualty loss deductions or to complete amended returns for prior years.
A casualty loss deduction for property damage is based on the decline in the fair market value of property due to damage or destruction by a sudden, unusual or unexpected event, including natural disasters and acts of terrorism.
If you are eligible for the deduction you are only eligible to the extent that insurance or other forms of compensation don't cover the cost of disaster damage or destruction of your property.
As is the case with deductions for mortgage insurance and property taxes, casualty loss is an itemized deduction included on Schedule A. Schedule A deductions are subtracted from your adjusted gross income, reducing your taxes by reducing your taxable income.
State tax laws vary on casualty loss deductions and because casualty loss deductions often involve large sums and complex tax calculations, you should seek the help of a knowledgeable tax professional to complete any tax return -- state or federal.
Individuals seeking to deduct personal property losses, can't deduct the full amount of the loss and must follow a detailed calculation involving their adjusted gross income and the major portion of the loss to determine the actual deduction.
Also, new tax rules, following the 2005 hurricane season, gave tax payers in the Gulf Coast area the option of taking a casualty loss deduction on an amended 2004 tax return or when they file their 2005 tax return.
Without the special disaster declaration, taxpayers don't have the extra filing option, but can nevertheless file for a casualty loss deduction with the tax return of the year in which the loss occurred.
Taxpayers in the disaster areas who suffered casualty losses are eligible for the free assistance if they are low to moderate-income taxpayers with gross annual earnings of $38,000 or less.
AICPA, AAA-CPA and other tax professional associations have often provided free assistance through the Federal Emergency Management Agency and disaster recovery centers. Now AICPA, AAA-CPA will also receive marching orders direct through referrals from IRS's VITA and TCE.
Assistance from participating CPAs may be via telephone, mail, e-mail or in some cases, face-to-face, after first visiting a VITA or TCE site. Convenient locations in communities across the country can be found by calling the IRS at 800-829-1040 or by calling AARP (the nation's largest TCE sponsor) at 888-227-7669.
"No matter where you live, technology gives CPAs across the nation the opportunity to volunteer right from their own desk," said Charles R. Kowal, director of Personal Financial Services at Ernst & Young LLP, a participant in the AICPA initiative.
