Your Tax Records Were Destroyed in a Disaster. Now What?

A fire or flood does not just destroy the house. It destroys the shoebox of receipts, the closing documents, last year's return, and the folder of statements you swore you would organize someday. Then, right when you need to prove a loss or file a return, there is nothing to look at.

Here is the reassuring part. Most of what you need exists somewhere else, and the IRS has procedures specifically for disaster victims. Here is how to rebuild your tax paper trail.

Why the records matter so much

After a disaster, you are likely to need records for at least three things:

• Claiming a casualty loss. The loss is figured from your adjusted basis and the decrease in value, minus insurance. Every one of those numbers needs support. See the disaster casualty loss deduction.
• Handling insurance money correctly. If insurance pays more than your basis, you may have a gain, and basis records decide the answer. See insurance payouts after a disaster.
• Filing and answering the IRS. This year's return, a pending notice, or an old year the IRS asks about all depend on prior-year information.

Step one: get your tax return information back from the IRS

The IRS keeps your filed return information, and getting it back is usually the easiest part. The IRS article on reconstructing records after a natural disaster lists the options:

• Get Transcript online. The IRS says you can "get free return transcripts immediately by visiting the Get Transcript tool on IRS.gov."
• By phone. The IRS lists 800-908-9946 to order transcripts by phone.
• Form 4506-T for transcripts by mail, including older years.
• Form 4506 for actual copies of previously filed returns.

A transcript shows most line items from your return and is free. A full copy, with attachments, comes through Form 4506 and normally carries a user fee.

The disaster fee waiver

Disaster victims can get that fee waived. The IRS instructs taxpayers to write the appropriate disaster designation, its example being "HURRICANE HARVEY," in red letters across the top of Form 4506-T or Form 4506. The IRS says this is done to expedite processing and to waive the normal user fee. Use the disaster name from the IRS news release for your area.

Step two: rebuild the basis in your home

Your adjusted basis is generally what you paid for the home plus the cost of improvements. The IRS suggests several sources:

• The title company, escrow company or bank that handled the purchase, which may have copies of closing documents. Real estate brokers may also help.
• The current property tax statement, which can show the ratio of land to building value. If you do not have it, the county assessor's office can provide copies.
• Recent sales of comparable homes in the neighborhood, to help establish fair market value.
• Your insurance policy, which usually lists building value.
• For improvements, contractors' records and written statements of the work and cost. The IRS also suggests that friends, relatives and photos from family gatherings can help show when improvements were made.

Start with the lender. If you have a mortgage, the servicer has the loan file, which often includes the appraisal and the closing statement.

Step three: document the damage itself

The IRS advises taking photographs or videos as soon after the disaster as possible. Do it before cleanup, before demolition, and before the first contractor removes anything. Then keep going:

• Photograph every room, every wall, every damaged item.
• Keep the insurance adjuster's report. Under Rev. Proc. 2018-08, the insurance company's loss report can serve as a safe harbor for measuring the decrease in value of personal-use residential property.
• Keep contractor estimates and, if you sign one, the repair contract. A binding contract with a licensed contractor is another safe harbor for federally declared disasters.
• If you apply for a federal disaster loan, keep the appraisal. It can also be used under Rev. Proc. 2018-08 and Section 165(i)(4).

Step four: rebuild the list of personal belongings

Contents are the hardest part. Nobody keeps a receipt for every lamp. The IRS suggestions are practical:

• Your phone. Photos taken inside the home may show furniture and belongings in the background.
• Your bank and card statements. Online statements can show past purchases, with dates and amounts.
• Sketches. If you have no photos, sketch each room, including furniture, drawers, shelves and items on the walls. The IRS says these "do not have to be professionally drawn, just functional."
• Supporting evidence. The IRS says to support valuations "with photographs, videos, canceled checks, receipts or other evidence."

Rev. Proc. 2018-08 also offers a replacement cost safe harbor for personal belongings lost in a federally declared disaster, which values each item as a percentage of today's replacement cost based on how long you owned it. It does not cover vehicles, boats, trailers, mobile homes, aircraft or antiques.

Step five: vehicles

For a car or truck, the IRS suggests using pricing resources such as Kelley Blue Book, the National Automobile Dealers Association or Edmunds to find fair market value. The dealer may have a copy of the purchase contract, or can give you a comparable price. If you are still making payments, the lienholder has records too.

Who else has your records

Think about every institution that touched your financial life last year. Most of them keep copies longer than you do:

• Employers can reissue Forms W-2, and payroll providers often have online portals with past pay stubs.
• Banks and brokerages keep statements and tax forms such as 1099s, often for several years, in online accounts.
• Your tax preparer likely kept a copy of the returns and the workpapers behind them.
• Insurance agents can provide the declarations page, the policy and any prior claim history.
• Your mortgage servicer has the annual mortgage interest statements, escrow records and the original loan file.

Make a list, then make the calls in one afternoon. It is faster than it sounds.

Workbooks and publications that help

The IRS points disaster victims to Publication 584, Casualty, Disaster, and Theft Loss Workbook, for personal-use property. Business owners can use Publication 584-B. Publication 3067, IRS Disaster Assistance, Federally Declared Disaster Area, is another resource. Working through Publication 584 room by room is tedious. It is also the most reliable way to build a list the IRS will accept.

Deadlines while you rebuild

If you are in a covered disaster area, filing and payment deadlines may be postponed. If you live outside the area but your records were inside it, you may still qualify as an affected taxpayer by calling the IRS disaster hotline at 866-562-5227. See IRS disaster relief postponements.

Going forward: make the next disaster easier

1. Keep digital copies of returns, closing statements and major receipts in cloud storage or with someone in another city.
2. Walk through the house once a year and take a video of every room, opening closets and drawers.
3. Keep a running list of home improvements with dates and costs.
4. Store insurance policies and the agent's contact information somewhere you can reach from your phone.

The bottom line

Your filing cabinet is gone, but most of your records are not. The IRS can give you transcripts and return copies, with the fee waived for disaster victims who mark the form. Lenders, title companies, assessors, banks and your own phone can rebuild the rest.

Start now, while memories are fresh and the photos are still on the phone.