Navigating Finances Post-Hurricane: 4 Strategies to Aid in Recovery and Reduce Financial Stress
Brace yourself, homeowners! As the 2025 hurricane season approaches, experts are raising red flags.
This season could be a rough one, with up to 19 named storms, including potentially five major hurricanes, making for an above-average year in the Atlantic basin.
Don't get caught off guard. Start preparing now and understand your tax relief options to soften potential financial blows due to escalating repair costs. Last year's Hurricane Helene resulted in over $78 billion in damages, according to the National Oceanic and Atmospheric Administration (NOAA). Hurricane season stretches from June 1 till Nov. 30 each year.
"Hurricanes can be a financial headache," warns Paul Miller, a certified public accountant (CPA) and managing partner of Miller & Company in New York City. "Beyond property damage, there's often a major disruption to employment and income, plus out-of-pocket costs for temporary housing, food, and repairs."
The good news is that there are financial and tax relief options available to homeowners after a natural disaster. From claiming casualty loss deductions to taking more time to file your tax return, there are key tax breaks that can help.
"The financial recovery process can stretch for years, and having access to tax relief can make a real difference," Miller says.
1. Claim a casualty loss deduction
Experienced hurricane damage? You might be eligible to claim a casualty loss deduction on your federal income tax return. A casualty loss refers to damage or destruction, such as a hurricane, tornado, or flood.
Currently, individuals can claim a casualty loss only if the event is a federally declared disaster. If your loss isn't attributed to a federally declared disaster, you generally won't be able to claim it.
To calculate the amount of your claim, start with the smaller of the property's cost or the decrease in its value. Then, subtract the following items:
- Any insurance or other reimbursements from the casualty loss
- $100.
- 10 percent of your adjusted gross income (AGI).
When these reductions are accounted for, the remaining amount is your casualty loss deduction.
Under current tax rules:
- To claim a casualty loss, you typically need to itemize your deductions using Schedule A and complete Form 4684, which reports gains and losses from casualties and thefts.
- However, if the loss is considered a qualified disaster loss, a specific catastrophic event identified by the IRS (you can find a list here), you can claim the deduction without itemizing. A qualified disaster loss is not subject to the 10 percent reduction in AGI, and the $100 subtraction increases to $500. It's best to consult a CPA or tax professional to help you deduct the correct amount on your tax return.
2. Exclude gains from a home sale after a hurricane
After a hurricane, you might decide to sell your home. Typically, after you sell a property at a gain, the profit is taxable, but most homeowners qualify for a valuable capital gain tax exclusion.
For example, if your home was a primary residence for at least two out of five years before the sale, you may qualify to exclude up to $250,000 of the gain from your taxable income or up to $500,000 if you're married and filing jointly.
However, if you lose your home due to a natural disaster, such as a hurricane, you may still qualify to exclude some of the gain – even if you don't fully meet the ownership and use tests – under the IRS' unforeseeable circumstance provision.
3. Special tax rules for retirement withdrawals
Impacted by a natural disaster, such as a hurricane? Special tax relief may apply to retirement account withdrawals and repayments.
A withdrawal made due to a hurricane might count as a qualified disaster recovery distribution. While the amount is generally taxable, you won't face the 10 percent early withdrawal penalty, normally applied to those under age 59 1/2 who withdraw from a retirement account like an IRA or 401(k).
Keep in mind that there are eligibility rules. Check out this IRS page for more information.
4. Penalty relief and more time to file
After a severe hurricane or other natural event, the IRS typically extends the deadlines to file and pay taxes, and may offer penalty relief. If you live in a federally declared disaster area, you often don't need to contact the IRS – the IRS automatically identifies affected taxpayers.
However, in some cases, you may need to contact the IRS disaster assistance hotline at 866.562.5227 if you recently moved to the area where the disaster occurred.
If you're affected by a hurricane or natural disaster, visit this IRS page on tax relief in disaster situations and this IRS FAQ page, or call the hotline to learn what specific tax relief options are available to you.
Stay informed and stay prepared! The more you know, the better equipped you'll be to face the financial challenges that might come your way during hurricane season.
- In the event of hurricane damage, you might be eligible to claim a casualty loss deduction on your federal income tax return. To do this, you need to itemize your deductions using Schedule A and complete Form 4684, which reports gains and losses from casualties and thefts. A certified public accountant (CPA) or tax professional can help you deduct the correct amount on your tax return.
- During a hurricane season, if you lose your home due to the natural disaster, you may still qualify to exclude some of the gain – even if you don't fully meet the ownership and use tests – under the IRS' unforeseeable circumstance provision, which allows most homeowners to exclude up to $250,000 of the gain from their taxable income or up to $500,000 if married and filing jointly.
