Unfortunately, due to recent historic rainfall, many in our community are in the process of working with insurance adjusters, water abatement and restoration companies and others due to flooded homes, basements and personal effects. We are truly sorry for this major life disruption and are here to assist you with any questions you may have related to claiming a casualty loss deduction on your income tax return.
Determination of Loss –
The loss you incurred is calculated by subtracting insurance proceeds or other reimbursements received or expected to receive from the lower of (1) the decrease in the fair market value of the property as a result of the casualty, or (2) your adjusted basis in the property prior to the event.
Decrease in Fair Market Value –
The decrease in fair market value is calculated as the difference between the property’s value immediately prior to and immediately after the event (flood). In many cases, an appraisal may be necessary both before and after the loss to determine value.
Adjusted Basis –
Adjusted basis is determined as the amount originally paid for the property increased by capital expenditures and reduced by depreciation deducted throughout the years.
Adjusted Gross Income Limitation –
Another hurdle to clear is the 10% of Adjusted Gross Income (AGI) limitation. The casualty loss, as determined above, is deductible only to the extent it exceeds 10% of your AGI for the year of loss. For example; if your AGI is $100,000 and your casualty loss is $25,000, you can only deduct $15,000 of the loss, computed as $25,000, less $10,000 (10% of AGI of $100,000).
If you think you may have a deductible loss, please contact us to guide you through the process.