As most counties in Florida were affected by Hurricane IRMA, it is important for taxpayers to understand the tax deductions and consequences of casualty losses.
A casualty loss is defined as loss arising from a sudden, unexpected, or unusual event. Damage from progressive deterioration through time or operation would not be a casualty loss. Casualty losses generally occur from fire, storm, shipwreck, or theft.
Laws and Limitations
A taxpayer may claim a deduction for any casualty loss sustained during the tax year. The loss claimed cannot be compensated by insurance. For individuals, a personal loss from a casualty is deductible only to the extent that
- It exceeds $100, and
- All casualty losses (after application of the $100-floor) for the tax year exceed 10% of adjusted gross income (AGI).
If the disaster occurs in a Presidentially declared disaster area, the taxpayer may elect to take into account the casualty loss in the tax year immediately preceding the tax year in which the disaster occurs. The deduction for casualty losses is an itemized deduction.
Other Important Notes
It is important to note that a taxpayer could have a taxable gain from a casualty event. If you receive an insurance payment that’s more than your adjusted basis in property damaged, the excess amount is taxable income.
Casualty losses for businesses are different than for individuals. Business casualty losses do not have the same income limitations as personal casualty losses.
Congress introduced legislation to ease some of the restrictions due to Hurricane Irma and Harvey. So far, no law changes have been made.
Contact us if you have a question about this subject.