05 Mar Treasury Issues Guidelines to Report Losses for Tax Purposes

Treasury issued Administrative Determination 18-05 (“Determination”), which provides how individuals will claim any losses suffered as consequence of Hurricane María. The determination is aimed at individual losses not related to a trade or business.

In the case of individuals the Puerto Rico Internal Revenue Code of 2011, as amended (“Code”), provides two deductions:

1. Losses suffered in the principal residence of the taxpayer
2. Losses suffered related to personal property and due to a casualty in an area designated as a disaster zone by the Governor. Such losses shall be limited to $5,000 per year and can be carried forward for the next two years.

In both cases, the amount of the deductible loss shall be reduced by any insurance payment received. The issues in this case arises due to the fact that the Code specifically provides that for these deductions, certain evidence has to be attached to the individual income tax return. However, since the individual income tax return is filed electronically, there was a challenge on how such required evidence was going to be included. Basically, the Determination provides that within 3 calendar days of filing the income tax return, the individual must send on a single pdf file certain evidence by email to perdidashuracanmaria@hacienda.pr.gov . The email should include the last 7 digits of the confirmation number provided upon filing, the name of the taxpayer and the tax year. Any individual not required to file electronically should attach the required information with his return.

In the case of the principal residence, the required evidence includes:

1. Certification that the residences suffered a damage. Evidence to sustain such claim requires one of the following:
   • Copy of claim made to FEMA
   • Copy of benefits request made to SBA
   • Claim to the insurance company
   • Application of Benefits to “Tu Hogar Renace” or any other assistance program
2. Copy of the acquisition deed or a title study to corroborate ownership of the property
3. Evidence of the damage suffered.
   • If the house has been repaired copy of the checks and the invoices related to the repairs
   • If the residence has not been repaired an assessment before and after the Hurricane or copy of proposals to repair the property.
4. Completed working paper included with the Determination

In the case of personal property, the required evidence includes:

1. Certification of the losses suffered. Evidence to sustain such claim require one of the following:
   • Copy of claim made to FEMA
   • Copy of benefits request made to SBA
   • Application of benefits to other assistance program
2. If the property was insured, evidence that a claim was filed and of any payment received
3. If any replacement property has been acquired, copy of the checks and the invoices related to said purchases d. If the residence has not been repaired, an assessment before and after the Hurricane or copy of proposals to repair the property.
4. Completed working paper included with the Determination

Finally, the Determination states that in the case of insurance proceeds received after the closing of year 2017, such amounts shall be included as income in the year of collection. It is not clear whether this rule applies only to individuals and how it will be construed in the case of involuntary conversions.