Casualty losses can provide a 2017 deduction, but rules tighten for 2018

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In 2017 if you suffered damage to your “personal property” there’s a chance that you will be able to deduct the loss from the damages as “casualty losses” on the federal income tax return for 2017. However, for 2018 -2025, the Tax Cuts and Jobs Act (TCJA) suspends this deduction except for losses due to a Presidentially declared disaster. A Presidentially declared disaster is an event officially declared a disaster by the President.

What is a casualty loss? A casualty loss is an abrupt, unexpected or unusual event, such as a natural disaster (volcano, tornado, hurricane, flood, earthquake), vandalism, theft, accident or fire. A casualty loss does not include damages from normal wear and tear (like car tires wearing out, roof replacement after the shingles wear out from regular use, or progressive deterioration from age or bug infestation).

When deducting casualty losses on your 2017 return here are some things to think about:

 

When to deduct.

Generally, you must deduct a casualty loss on your return for the year it occurred. Nevertheless, you may have the choice to deduct the loss on an amended return for the immediately preceding tax year, if you have a loss from a federally declared disaster area.

 

Amount of loss.

Your loss is usually the lesser of:

  1. Your modified basis in the property before the disaster (generally, the amount you paid for it, but, there can be some additions to or subtractions from the amount you paid for it).
  2. A decrease in the fair market value of the property because of the casualty. Any insurance or other reimbursements you received or expect to receive must reduce this amount. (If your property was insured, you must file a “timely claim” with the insurance company for all the loss.)

 

$100 rule.

Once you have calculated your casualty loss on personal-use property, you need to reduce that loss by $100. This reduction applies to each casualty loss event throughout the year. It doesn’t matter how many pieces of property are involved in an incident.

 

10% rule.

You need to reduce the total amount of all your casualty losses on personal use property for the year by 10% of your adjusted gross income (AGI). Strictly speaking, you can deduct these losses only to the extent they surpass 10% of your AGI.

Note that special relief has been granted to specific victims of:

  • Hurricane Harvey,
  • Hurricane Irma
  • Hurricane Maria
  • Some California wildfires

Whenever special assistance has been given, it affects the casualty loss rules (just reading the standard regulations for deducting casualty losses may not provide an accurate answer or guidance on how to properly deduct these casualty losses). Please contact us for details on this relief or other questions about casualty losses.

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Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.