Now that the shock of what Hurricanes Harvey and Irma did to our country has begun to fade, it can be too easy for those unaffected to go on with their lives without paying any more attention to those directly affected. So first let this be a slight push to not completely forget about those who are still battling, and if your situation has changed since the storms struck and you can now afford to give help, please do. And those are only the disasters I mentioned in this space previously, for we also should not forget those in Puerto Rico still trying to rebuild after Maria’s wrath.
What all this tells us is that the impact of huge storms like these does not end when the storms move out. Returning to normal cannot be done with the flick of a wand when your house may no longer be a suitable or safe dwelling. And although I wrote earlier of some of the special tax rules being put in effect for those in disaster areas, I want to also note that many of those people can also take advantage of the casualty loss tax deduction.
This was not included as one of the special measures being undertaken by the IRS, for it is something always in place. It may be one of the deductions not always known about, however, for many rely on their insurance to reimburse them for any damage, destruction, or property loss occurring from unexpected events. And it is true that this this deduction does not cover things for which you were reimbursed by insurance. What about when insurance does not cover everything, though? Well at that point, at least you can have some of that hurt mitigated with tax help.
To cover the very basics of this rule, casualty losses occur from “sudden, unexpected, or unusual” events. This means that anything not occurring through normal wear and tear or progressive deterioration could possibly be reported as a loss on your taxes. Think of it this way, if you need a new roof because it’s been a number of years since it was replaced, that does not count, but if you need a new roof because a tornado damaged your home, then it does count.
When this happens to your personal property, the amount of your casualty loss is the lesser of the adjusted basis of your property or the decrease in fair market value of your property as the result of the casualty.
Now at this point the insurance reimbursement comes into play, for you must adjust the casualty loss by the amount of that reimbursement, but if you can document that you still had a loss following that, then it can still be reported as an itemized deduction.
And as a side note, the same general rules apply to any losses you may have from theft.
Such losses are generally deductible in the year that they occur, so you don’t want to sit on making claims and getting everything in order when it comes to these events. There are also some rules around the deduction that make it not the easiest deduction to navigate, but as always, please be sure to reach out to us if you need any assistance doing so.
Connect to Us ~ Facebook ~ Twitter
To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.