Dear Tax Talk,
We have some damage in our house that needs repair but is not covered by insurance. Can I recover that loss by claiming a loss on my taxes? The adjuster mentioned this may be possible. Thanks.
I believe your adjuster was referring to a casualty loss, and if you meet the IRS criteria, then you will be able to claim the loss on IRS Form 4684, Casualties and Thefts. Because you have not provided specific details on your situation other than the damage was not covered by your homeowners insurance, let’s take a look at the IRS requirements for this tax deduction.
What is a casualty?
The IRS defines a casualty as the “damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.”
Mother Nature provides many casualties in the form of earthquakes, floods, hurricanes and other forms of weather-related mayhem. The fine print is in the details, as “sudden, unexpected or unusual” is part of the definition. This means that something like normal wear and tear on property as the result of “progressive deterioration” does not count as a casualty. An example of this would be termite damage or other types of damage that are naturally caused from a process rather than a sudden event.
If you have made it with me this far and believe you have a casualty loss, then you need to be aware of how much of the loss is going to be deductible. This is where many people find out they do not end up receiving much of a tax benefit once they fill out Form 4684.
- First of all, for personal losses you must reduce your loss by $100.
- Next, you have to reduce your loss by 10 percent of your “adjusted gross income,” which is shown on line 38 of Form 1040.
- The final hurdle: You must claim the loss on Schedule A as an itemized deduction.
So if you are better off taking the standard deduction versus itemizing your deductions on Schedule A, you may find that you did a lot of work for no actual tax deduction on your return.
Thanks for the great question and all the best to you.
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