Unfortunately, damage to your home from storms or other unexpected disasters can wreak havoc on your personal finances. As the costs of repair work, temporary accommodations and cleaning pile on top of one another, many individuals are left asking what, if anything can be done to help defray these expenses beyond the support provided by their insurance. Although there is no "perfect" solution to this issue, you may be surprised to learn that you will be able to write off certain expenses related to the repair of your property on your next tax return – under particular circumstances.
While you will not be able to deduct any expenses that your insurance company pays for directly, the deductible you pay as part of the repair process does qualify as a valid tax deduction if your property has been damaged in an area that has been declared a disaster zone.
Home insurance deductible tax write-offs are available. However, in order to ensure that your full deductible is eligible to be written off, you must first calculate the specific value of casualty loss that occurred with your property and ensure that your property is located in a disaster area as declared by the federal government.
About Tax Deductions for Homeowners
According to recently updated federal guidelines, claiming a deduction on damage to your property falls under the category of "personal casualty loss." Note that "casualty" in this context does not imply that someone has passed away. Rather, the Internal Revenue Service uses this term to refer to any damage and destruction relating to your personal property that has been directly caused by an unexpected, identifiable event. So, as an example, if the roof of your house has been destroyed by a tornado, this would qualify as a personal casualty loss given the distinctive nature of the event in question and the fact that it was unexpected.
As part of tax code changes implemented by the Tax Cuts and Jobs Act, casualty loss deductions now may only be claimed if the property was damaged in an area that has been declared a disaster zone by the President.
Pricing Out Personal Casualty Loss
Per IRS guidelines, the specific "value" of a casualty loss is defined by one of two parameters, the final result being whichever is less: 1.) the specific tax basis of the property before the destructive event occurred and 2.) the specific decrease in the fair market value of the property because of the casualty event.
In many situations, individuals whose property has been affected by an event such as this will hire a qualified professional appraiser independent of the IRS in order to assess the impact the damage has had on the FMV of the home. Oftentimes, these individuals can assist you by providing a credible source of reference when you are attempting to claim your deduction on your next tax return.
Claiming the House Tax Deduction
Once you have determined specifically how much you will be eligible to claim, you can fill out Schedule A of IRS Form 1040 in order to ensure that you receive all appropriate reductions to your tax bill. Keep in mind that you will only be able to claim money that you paid for directly to offset the casualty loss value. Any funds that your insurance company contributed to this process will not be considered a valid deduction.
With that in mind, you will likely only be able to claim up to the stipulated amount of your deductible, given the fact that your insurance company will pay all expenses following that price threshold. That being said, if your deductible falls outside of the bounds of the personal casualty loss value you calculated earlier, you may not be able to write off this full amount on Schedule A. Careful and precise calculations are an absolute must.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.