Hurricane Losses and Casualty Damage Tax Deductions
It is not the old days when casualty losses were automatically deductible expenses from US Income Taxes. Since Congress changed the Internal Revenue Code in 2017, casualty losses such as Hurricane Damage are no longer fully deductible.
First, the limitation is the amount exceeding Adjusted Gross Income (AGI). This is total income, not Taxable Income. For example, if AGI is $150,000, only more than $15,000 in losses could be deducted. So, if a loss were $40,000, only $25,000 could be deducted.
The second major limitation is that the loss cannot exceed the basis of the property. For example, suppose a residence was totally destroyed in a hurricane and was purchased for $100,000 many years ago and is now worth $500,000. In that case, the total cap on the deduction is $100,000. If the owner had an AGI of $250,000, the amount deductible is $75,000, even though the real loss is $500,000.
The third major limitation is that a personal casualty loss must be from a Federally declared disaster.If the loss is due to theft, a house fire, or a tree crushing a house, it is not personally deductible.
It’s crucial to note that the typical tax software used by CPAs and Tax preparers may not always handle casualty losses correctly. Therefore, it’s essential to have your accountant thoroughly check this, as understanding the limitations of deducting casualty losses is complex.
If you have any questions, please do not hesitate to call me at 856-665-2121
Ron Cappuccio
October 13, 2024