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Tax Tips for Hurricane Victims

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

tax tips for hurricane victims
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The 2017 hurricane season wreaked havoc across the Southeast, but for those living in federally declared disaster areas, special disaster tax relief is available.

Three Category 4 hurricanes — Harvey, Irma and Maria — ravaged parts of the continental U.S., Puerto Rico and the U.S. Virgin Islands in 2017. Those storms alone caused about $265 billion in damages, according to estimates from the National Oceanic and Atmospheric Administration, and they weren’t the only ones. There were a total of 16 billion-dollar climate disasters in the U.S. in 2017, the NOAA reports.

States up the coast and as far inland as Tennessee felt the effects of the hurricanes. The U.S. Census Bureau says that Harvey affected nearly 22 million people, Irma affected more than 53 million and Maria affected about 3.7 million. Texas, Florida, Puerto Rico and the U.S. Virgin Islands bore the brunt of the damages, as that’s where the storms made landfall, but many residents also endured flooding and power outages in Alabama, Georgia, Louisiana, Mississippi and South Carolina.

Special tax provisions for both individuals and businesses can offset the impact of the three storms’ impact on millions of people under The Disaster Tax Relief and Airport and Airway Extension Act of 2017.

Under the act, deadlines for taxes like quarterly, payroll and excise were extended from Fall 2017 or early January deadlines to Jan. 31, 2018. In Florida, corporate returns and payments were extended to Feb. 15, 2018.

B. Trevor Wilson, partner in the tax and estates practice group at Jones Walker in Baton Rouge, La., says most returns qualify for relief, but filing documents like 1099s and W-2s, which are known as information returns, are not eligible for a deadline extension.

Here are key ways that residents in hurricane-stricken areas can take advantage of disaster tax relief.

You can claim personal casualty losses

Generally, you can’t claim personal casualty losses when doing your taxes, unless you meet certain qualifications, itemize your deduction and your loss exceeded 10 percent of your adjusted gross income (AGI), says Eric Smith, a spokesman for the IRS.

If you suffered damage from Harvey, Irma or Maria, and your uninsured, unreimbursed loss exceeds $500, you can claim it on your standard return without itemizing.

“Most people who suffered significant damage from these hurricanes were probably going to clear that threshold pretty easily,” said Smith.

Though it’s been updated, the aid is similar to tax relief provided after 2005’s Hurricane Katrina, says Smith.

There also are provisions for business owners. Though they vary slightly from individual relief, Wilson says one difference is there is no threshold for loss, so the first uninsured, unreimbursed dollar of loss can be claimed.

How to prove your losses

It may seem like a difficult task to determine your loss, but there are tools to help.

Even if you haven’t had a recent appraisal on your home, Smith says IRS formulas can help you determine the amount of loss you can claim. Different tables help calculate damage to your roof, decking and the structure of your home; the cost of interior flooding; and if it was a near or total loss.

IRS revenue procedures provide eight safe harbor methods for taxpayers to use in determining their losses, three of which are specifically for assessing losses due to federally declared disasters and one specifically for Harvey, Irma and Maria victims. Six of the methods apply to personal residential property and two apply to personal belongings. Here’s an overview of the methods:

For losses of personal-use residential real property

Personal-use residential real property includes property that contains at least one personal residence and is owned by someone who suffered a casualty loss (like a hurricane). For these purposes, a personal residence includes single-family homes and individual units of attached properties (like a townhouse or duplex). Owners of condominiums, co-ops and some mobile homes are out of luck — people who don’t own the structural features of their property (like the walls, foundation or roof) don’t qualify. The property is also not considered personal-use residential property if any part of it is used as a rental property or home office for a for-profit business.

As you can tell from the complicated definition above, figuring out if you can claim these losses on your taxes can get tricky — there are lots of rules to follow and exceptions to be aware of. Work with a tax professional to make sure you’re doing it correctly.

Estimated Repair Cost Safe Harbor Method

This method is for losses of $20,000 or less. You have two independent contractors prepare itemized estimates of the costs required to restore your property to its pre-casualty condition. You use the lesser of the two estimates to determine your cost.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. You can determine the loss on a good-faith basis, but must keep records of the methods used to determine loss.

Insurance Safe Harbor Method

This method allows an you to use the estimated loss as determined by your homeowners or flood insurance report.

Contractor Safe Harbor Method

This method allows you to determine the decrease in the fair market value of your property by using the contract prices for repairs by an independent contractor. It must be a binding contract signed by both you and the contractor, who is licensed and registered in accordance with state or local regulations.

Disaster Loan Appraisal Safe Harbor Method

Using this method, you can determine the decrease in your property’s fair market value using an appraisal that was prepared for the purpose of obtaining federal funds or federal government loan.

Cost Indexes Safe Harbor Method

This method provides cost indexes for properties based on square footage and geographical area. If you own two or more properties and use this method for one, you do not have to use the cost index method or any other safe harbor method for any other property.

For losses of personal belongings

For these purposes, personal belongings are items owned by people who suffered casualty losses, as long as those items are not used for business and do not maintain or increase in value over time (like antiques). Things like boats, aircrafts, mobile homes, trailers and vehicles are not considered personal belongings in this situation.

De Minimis Safe Harbor Method

This method is for losses of $5,000 or less. Similar to the same method used for property loss, you can determine your loss on a good-faith basis. You must keep records detailing the personal belongings affected and the methodology used to determine loss.

Wilson says one way to calculate the loss of personal items is to use third-party prices from resellers like Goodwill, which publishes its prices as reference.

“Something you’ve had for five years is not worth something you bought brand-new,” he added.

Replacement Cost Safe Harbor Method

Using this method, you can determine the decrease in fair market value of personal belongings by estimating the cost of replacing each item minus 10 percent for each year the item was owned. If owned for nine or more years, the pre-disaster value is 10 percent of the cost of replacement. If using this method, you must apply it to all personal belongings that are claimed as a loss for that disaster.

You can borrow from your qualified plan

Special provisions allow hurricane victims to take penalty-free hardship withdrawals from qualified plans like their 401(k). For example, if a person is less than 59 ½ years of age, there is typically a withdrawal fee of 10 percent. But under the new law, the fee is waived and the amount you’re allowed to borrow increases to either $100,000 or 100 percent of the account balance, whichever is lower. (The limit is usually $50,000.)

“Generally, you have limitations on what you can use loans for and your employer must allow for them,” said Wilson, “but this relief kind of overrides all that and gives you quicker access to your 401(k) plan for loans.”

Smith says using this option is an individual decision. Although it could be helpful, make sure that there isn’t another option that doesn’t deplete your retirement fund.

If it is something you feel comfortable doing, the typical five-year repayment period can be extended an extra year, as well.

You can file for this year or the previous year

“One of the things that’s unique about disaster area loss claims is that you can choose to report it for the year that it happened, or the prior year,” said Smith. “It sets up a different situation than what normally occurs in the tax world.”

The process can take a while, because you have to prepare an amended tax return on paper, he says.

If your income looks the same on your 2016 and 2017 returns, Smith recommends filing for 2017. However, if your income or tax bracket changed and amending 2016’s return would yield a bigger refund, that option is available.

Whether you choose to file an amended return for 2016 or claim your losses on your 2017 tax return, the IRS says to write your state and the hurricane(s) you are claiming casualties from at the top of your return, such as “Texas, Hurricane Harvey.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Khoury
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Kat Khoury is a writer at MagnifyMoney. You can email Kat here

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2019 Fed Meeting Predictions — No More Rate Hikes Until 2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The March Fed meeting put the kibosh on more rate hikes in 2019. With FOMC policy on pause, market interest rates should hold steady (or even decline in some cases) for financial products you use every day. Read on for our predictions for each upcoming Fed meeting and updates on what went down at the most recent conclaves.

What happened at the March Fed meeting

The Federal Reserve signaled no rate hikes this year, and the possibility of only one increase in 2020. The Fed has pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it puts policy on ice. This change in tone grows directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains have plateaued along with the unemployment rate, which nevertheless remains at very low levels.

So the federal funds rate looks to remain at 2.25% to 2.50% for a year or more, and the FOMC highlighted that this is the not-too-hot, not-too-cold level that for now best serves its dual mandate to “foster maximum employment and price stability.”

The Fed also released its Summary of Economic Projections (SEP). The March SEP indicated a median projected federal funds rate of 2.6% for 2020, which is why everybody is discussing the possibility of at least one, small increase next year.

For those who were really hoping for at least one more rate hike, all is not lost — Tendayi Kapfidze, LendingTree chief economist, believes we shouldn’t take March’s decision too gravely. “There are special factors that suggest the economy could reaccelerate,” he says. “The government shutdown threw a wrench into things, slowing some activity and distorting how we measure the economy.” He also remarks that since the financial crisis, data in the first quarter has continued to come in weak, still leaving room for everything to reaccelerate in the second and third quarters. He points to the already strong labor market as a plus.

Fed economic forecasts hint at a possible rate cut by the end of 2019. Just as the Fed projects a slightly higher federal funds rate in 2020, it also posted a projected 2.4% for 2019. Note that this projected rate falls below the upper end of the current rate corridor of 2.5%. This means the doves may want to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.

When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s current positive outlook, while also emphasizing that it remains mindful of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it’s still early in the year, they have limited and mixed data to consult.

Kapfidze offers a more concretely positive outlook, noting that the chances of a rate cut are pretty slim. “To get a rate cut, you’d have to have sustained growth below 2%. There would have to be further weakness in the economy, like if trade deals get messier, to warrant a rate cut.”

The Fed downgraded its economic outlook for 2019 for the second time in recent months. In line with Kapfidze’s predictions, we did see a weaker economic outlook coming out of this month’s Fed meeting. The median GDP forecast for 2019 and 2020 decreased from December projections, while it remained the same for 2021 and beyond. This comes hand in hand with the decreased fed funds rate projections.

The FOMC increased their unemployment projections, which Kapfidze found surprising because the labor market has been so strong. “Maybe they believe that those numbers indicate a deceleration,” he said, “but really, it has to be consistent considering the other changes that they made.”

Why the Fed March meeting is important for you

It’s easy to let all of this monetary policy talk go in one ear and out the other. But what the Fed does or doesn’t change has an impact on your daily life. Without a rate hike since December, we’re already starting to see mortgage rates fall. This is helpful not only for those who want to buy a home, but also for those who bought homes at last year’s highs to refinance.

As for personal loans and credit cards, we may still see these rates continue to increase, just at a slower rate. These rates have little chance of decreasing because lenders may take the current weaker economic data as a sign that the economy is going to be more risky.

Deposit accounts will feel the opposite effects as banks may start to cut savings account rates. At best, banks will keep their rates where they are for now, until more evidence for a rate cut arises.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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