A client asked us the other day if she could deduct costs she has incurred to repair damage to her home following the severe storms this past winter.
Damage to property resulting from severe storms like those we experienced this past winter in New England are considered sudden, unexpected, or unusual in nature and do qualify as casualty losses for tax purposes.
A casualty loss is calculated as the lesser of either the decrease in fair market value of the property as a result of the casualty loss or the adjusted basis in the property before the casualty loss. This value is then reduced by any insurance reimbursement received or expected to be received.
Once the casualty loss has been calculated, there are two additional limitations that apply in arriving at the deductible amount for tax purposes.
First, the loss is reduced by $100 for each casualty event. Second, the result is reduced by 10% of the taxpayers’ adjusted gross income for the year.
Because of the insurable nature of these casualty events, the majority of the cost to repair damage from a winter storm is likely covered by insurance and due to the limitations imposed in calculating the deductible portion of the loss, any costs not covered by insurance will likely not exceed the 10% of adjusted gross income limitation.
If you have suffered a casualty loss and have questions on how this may impact your return, we can help.
Written by Tom Charbonnier