On September 29th President Trump enacted the Disaster Tax Relief and Airport and Airway Extension Act of 2017 https://www.congress.gov/bill/115th-congress/house-bill/3823. Among many other benefits, the act provides for relaxed rules pertaining to Casualty Losses. The IRS has not yet issued specific guidance on all of these matters. This blog focuses on claiming Casualty Losses under the relief rules.
In short, be sure to save any receipts for repairs that are a direct result of the storms because more generous Casualty Loss regulations will come into effect.
Normally, to claim a casualty loss the amount of out-of-pocket expenses that exceed insurance reimbursements must be greater than 10% of your adjusted gross income, plus an additional $100. Under the Act the 10% of AGI requirement is eliminated. The $100 floor is raised to $500.
The old rule is: 10% of AGI + $100 = floor for claiming a casualty loss as an itemized deduction on Schedule A. Assume you spent $10,000 on hurricane repairs and the insurance company gave you $7,000. That leaves $3,000 – $100 floor = casualty loss of $2,900. The $2,900 must now be greater than 10% of your AGI to make a claim on Schedule A.
The act makes it legal to make the claim as long as your casualty loss is greater than the new floor of $500. In our example, the taxpayer can claim $2,500 ($3,000 – $500 floor = $2,500 claim) regardless of their AGI.
The act also eliminated the need for the taxpayer to itemize deductions on Schedule A in order to get the special relief. The casualty loss is supposed to raise the standard deduction by the amount of calculated loss. Exactly how the IRS will regulate that has not yet been made clear.
What is clear is that, like money in the bank, you need to keep all records of hurricane-related expenses because the IRS guidance will be forthcoming. Provide your casualty loss numbers to your licensed tax professional with your other 2017 tax information.