A personal casualty loss results from the damage, destruction, or loss of your property from any sudden, unusual, or unexpected event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. It does not include the loss from normal wear and tear and/or progressive deterioration.
Deducting the Loss
An individual taxpayer deducts their personal casualty loss on their Form 1040, Schedule A, Itemized Deductions. There are two adjustments that need to be made to each casualty loss. First, you must subtract $100 from the net casualty loss, and second, the casualty loss must exceed 10% of your Adjusted Gross Income (AGI). The net casualty loss is your total loss plus any salvage value and any insurance or other reimbursements that you received.
Under the Tax Cuts and Jobs Act there is one additional hurdle that must be crossed in order to take the deduction; the loss must be from a federally declared disaster.
Disaster Area Losses
A federally declared disaster is a disaster that occurred in an area declared by the President of the United States to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. A list of all federally declared disaster areas can be found at https://www.fema.gov/disasters.
Other Personal Casualty Losses
If you have a loss from a non-federally declared disaster you may still have options in utilizing the loss. You can reduce personal casualty capital gains by the losses not attributed to a federally declared disaster area to, but not below, zero. You can also reduce any insurance proceeds received by the amount of casualty loss incurred. It is important to note these other personal casualty losses should be taken against casualty gains and insurance proceeds before utilizing any federally declared disaster losses so that you can receive the highest deduction possible.
If you are impacted by a natural disaster be sure to keep track of any and all expenses that you incur and contact your CPA for additional guidance. You should also make a detailed inventory of the items you lost. It is a good idea to go ahead and make an inventory of your large items now, so that when disaster strikes you have a good starting point.
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