Deducting Casualty Losses
Due to the existing hurricane season, it is important for taxpayers to know where they stand if they suffer any losses to personal or real property during a disaster. In the unfortunate event that a loss is suffered, the taxpayer may be able to deduct losses incurred on their federal income tax return.
The loss can only be deducted if it fits the description of a casualty, which is an unexpected, sudden or unusual event. This consists of losses from natural disasters, fires, accidents, theft or vandalism. Casualty losses do not include losses from normal wear and tear or termite damage.
Taxpayers typically are required to deduct the loss in the year it occurred. However, if the loss was sustained in a federally declared disaster area, the taxpayer can chose either to deduct the loss in the year it occurred or amend their prior year’s return to claim the deduction.
If the property is insured, the taxpayer must file a timely claim for reimbursement of the loss amount. If the amount received from insurance is not the entire loss amount, the difference would be reported on your tax return as a casualty loss. In addition, any amount in excess of 10% of your AGI would be your actual casualty loss deduction.