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Dear Brass Tax Presentations,
I attended your presentation in Fresno, CA & enjoyed it tremendously! I did forget however to ask about the flooding in CA and being able to split the retirement disbursement over three years. I do reside in a county that was declared a disaster area, is that enough to use form 8915F for a retirement distribution? My client took $50000 out of an inherited IRA for the purchase of a car after an accident totaled her car in 2023, she too resides in the same county. If i’m able to split over the 3 years she will save a lot of money ($2500 alone would go to Covered CA, if I can’t split it. I told her I needed to research it.
I remember when I first became aware of this form was in 2020 due to covid through a Brass Tax webinar. It was the general assumption that everyone was affected by COVID so the form could be used for most people who took a retirement disbursement.
My client’s home was not affected or personal property but did have emergency crews going through her neighborhood with bullhorns warning of evacuations & work was cut back for a week or two also due to the flooding car prices were much higher.
I’m hoping you can help me understand if that is too much of a reach for her (saving thousands) or if we meet the requirements of economic loss.
I really appreciate your thoughts on this and admire how knowledgeable and versed you are on these subjects.
Thank you for your time.
From Brass Tax Presentations
There is no definition of an economic loss within the code section that allows for disaster distributions. There also aren’t really any old court cases on the definition of economic loss that I could find that would be relevant. The IRS gives some examples and they say that “it includes, but is not limited to: (a) loss damage or description of tangible property from fire, flooding, looting, vandalism, theft, wind or other causes; (b) loss related to displacement from your home; or (c) loss of livelihood due to temporary or permanent layoffs”.
You and your client will have to look at their situation and determine together if you believe they experienced an economic loss by reason of the disaster. It would be important to be able to document it. The thing I would lean into is work being cut back due to flooding. If they got paid less as a result of not being able to go to work due to flooding, I believe it is reasonable to call that an economic loss by reason of the disaster. Keep in mind that the amount of the distribution is in no way tied to the need of the taxpayer or proportionate to the economic loss sustained.
I should also point out that the distribution needs to be taken on or after the first date of the incident period they were affected by and before the date that is 180 days after the incident ended. You can get the incident start and end date on the FEMA website.