If a South Carolina home or business is damaged by a storm such as Florence, there are a few state tax rules the property owner will want to know about.
Even for homeowners who suffered no damage from the recent hurricane, one of the things I’m going to tell you about could reduce your next state income tax bill and help prepare financially for future storms.
For those who did suffer damage:
Establishing a “catastrophe savings account” to pay an insurance deductible, or self-insurance costs, could be a money-saver. Appealing the damaged property’s tax assessment next year could reduce the 2019 tax bill.
Catastrophe savings accounts are an often-overlooked, tax-advantaged way to save and pay for homeowner insurance deductibles in South Carolina, when claims are filed after disasters that have been declared emergencies by the governor. State law created the rules more than a decade ago, but it’s up to home owners to find a bank that offers these accounts.
The accounts can be used by people who own a single-family home that is, for property tax purposes, their legal residence in South Carolina. Here’s how they work:
If you put money into a CSA, which is an interest-bearing bank account, you get to deduct the qualifying deposit from your taxable South Carolina income, which for most people is like getting 7 percent back .
It’s important to know that if you withdraw money from a CSA for anything other than paying for “qualified catastrophe expenses” then the money would be taxed as income, and a 2.5 percent penalty could also apply, the Department of Insurance says .
However, if the account owner established it to pay insurance deductibles, and they are at least 70 when they withdraw the money, there’s no tax and no penalty. In other words you could open a CSA, claim the state tax deduction, then withdraw all the money when you’re at least 70 for any purpose.
Of course, you only benefit from a tax deduction if you owe taxes, and lots of older South Carolina residents don’t owe state income tax, but that’s how the rules work.
Regardless of age, if money’s withdrawn from a CSA to pay for qualified expenses, no tax is owed on the original contribution or interest earned. It’s sort of like an IRA or college savings account, but for disaster-related insurance deductibles or self-insurance.
Self-insured homeowners can have CSAs, and can potentially claim large tax deductions, but they don’t get to withdraw the money at age 70 for any reason without tax or penalty. The amount that can be contributed to a CSA depends on the insurance deductible, a person can only have one CSA, and the limits are :
$2,000 for someone whose insurance deductible is $1,000 or less, or double the deductible, up to a $15,000 cap, for someone whose deductible is more than $1,000, or the lesser of $250,000 or the value of the taxpayer’s legal residence for a self-insured individual.
One important thing about CSAs – I have called this a loophole – is that there’s nothing to stop you from opening such an account after a disaster, and using the money for qualifying expenses. So, for example, if your home needed repairs related to Florence, and you had a $10,000 insurance deductible (and you had the $10,000), you could potentially put the money in a CSA, then take it back out to pay for the repairs, and reduce next year’s South Carolina income tax bill by $700.
If your property was damaged, you can appeal your tax assessment and potentially lower your property tax bill. But don’t do that until next year.
Property tax bills, like the ones that will be mailed in the coming weeks, are based upon what properties were worth the prior year on December 31. So, any Florence damage to a property wouldn’t lower the tax bills that will soon be in the mail, but it could lower the bill in 2019.
Properties that were flooded by Florence and by prior storms as well, such as Hurricane Matthew, are arguably worth less than they used to be because of the repeated damage. That’s a reason to appeal, because property taxes are based on what properties are worth.
Some properties may be temporarily worth less, at the end of this year, due to Florence damage that can be repaired. That’s also a reason to file an assessment appeal in 2019, with your local county tax assessor.
This article provided by NewsEdge.