Casualty Loss - Itemized Deductions (2019 Update)
Under the Tax Cuts and Jobs Act (TCJA), losses for individuals are now only deductible to the extent they are attributable to a federally declared disaster. The Federal Emergency Management Agency (FEMA) is responsible for such declarations and lists them online at https://www.fema.gov/disasters.
There is an exception to the rule: If you have personal casualty gains, you may deduct personal casualty losses that aren’t attributable to a federally declared disaster to the extent they don’t exceed your personal casualty gains.
Many taxpayers are surprised to learn that what they thought was a casualty loss is a casualty gain! When taxpayers receive insurance proceeds or other payments that exceed their adjusted tax basis in damaged and/or destroyed property, they are generally treated as having realized a gain for tax purposes (known as gain from an involuntary conversion). The tax code provides some assistance by allowing property owners to defer some or all these casualty gains under the involuntary conversion rules. Also, where the property that suffered the casualty loss is a taxpayer’s principal residence, there is an opportunity for the taxpayer to completely avoid some or all the gain.
In the northeast, it is more likely for a taxpayer to have a casualty gain than a casualty loss. If you keep excellent records and receipts, we can help you through it.