When the expenses start to mount up after unexpected damage to your home or property, you may not be entirely out of luck. Certain expenses you pay out of pocket to repair your property may be tax deductible. This can be a welcome reprieve if you have been forced to invest a large sum of money into critical repairs before tax season rolls around. That being said, you can't take a deduction for anything your insurance pays for. If, say, a storm destroys your $200,000 house and you get $200,000 back, you have no write-off. You can claim whatever the insurance doesn't pay for, though, and that figure includes whatever you paid in deductibles.
You can claim any qualifying damage repairs you pay out of pocket, including your insurance deductible.
Insurance Deductible Tax Deduction
You report casualty, theft and disaster losses on Schedule A, for itemized deductions. If you take the standard deduction, there's no write-off for personal property. If you do itemize, property losses are 2 percent deductions, along with such other expenses as unreimbursed employee expenses and investment expenses. You add all such deductions together and subtract 2 percent of your adjusted gross income. The remainder is what you get to write off on taxes. If these deductions add up to less than 2 percent of your AGI, you write off zero.
Exceptions to Deducting Costs
Unfortunately, you can't subtract your insurance check from the size of your loss and write the result on your 1040 Form. Instead, you must first figure out how much the value of your property has dropped due to the damage inflicted by the incident. As a general rule: for purposes of calculating your tax deduction, this figure cannot be greater than the adjusted basis of your home. In other words, the drop in value cannot exceed the value just before the loss occurred, based on the original purchase price and including adjustments for improvements and depreciation.
In order to quickly derive a calculation reflecting the amount of your loss, do the following: take the loss in value to your home – or your adjusted basis, if that's smaller – and subtract whatever reimbursement you got from your insurer. This figure, which accounts for any deductibles you paid out of pocket, gives you the amount of your loss. If you don't get your insurance payment before taxes are due, ask your insurer for an estimate and use that figure in your calculations. If the payment ends up being more or less than the estimate, you report the difference on your taxes for the year you finally get the check.
The amount of your loss, however, isn't what you get to deduct. First, you subtract $100 from each loss you report for the year. If, say, you lost $1,000 on your home and $500 on your rental house in separate events, you can only claim $900 and $400. If you co-own property with someone other than a spouse, you each subtract $100 from the loss. Then add all these losses together and subtract 10 percent. Continuing the example, you'd add $900 and $400 and subtract $130, yielding $1,170. That's the figure you use to calculate your deduction on Schedule A.
Changes with 2018 Taxes
The 2018 Tax Cuts and Jobs Act brings unwelcome news to those who suffer home damage. Starting with the 2018 tax year, you can only claim damage if it was caused by a federal disaster. This means the government must declare the event a federal disaster for it to qualify. If a rough thunderstorm takes out part of your roof, in other words, you won't be able to claim any of your out-of-pocket expenses on your taxes.
Filing Your 2017 Taxes
If you're still filing your 2017 taxes, though, you're in luck. To claim your house tax deduction, use Schedule A. That will be the last year you can claim homeowners insurance deductible taxes without it being a federal disaster.
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