For taxpayers victimized by casualties or thefts, at least there was a silver lining in the dark cloud: You may have qualified for a deductible loss on your personal tax return. Now the new tax law, the Tax Cuts and Jobs Act (TCJA), repeals this deduction, except for losses caused by certain natural disasters, beginning in 2018.
But individuals who suffered losses due to casualties and thefts last year can still deduct the losses under the prior rules on 2017 returns.
Here’s the gist of it: For the 2017 tax year, you may deduct the loss attributable to an event that is, in the words of IRS regulations, “sudden, unexpected or unusual.” This covers damage from most natural disasters and other catastrophic events like auto accidents or water pipes bursting during a deep freeze. But damage that occurs over a long period of time, like termite damage, doesn’t qualify.
The IRS requires you to group casualty losses with losses due to theft on your return. The losses are generally claimed in the year of the casualty or theft.
However, you can’t simply deduct the full amount of your loss. For starters, the amount eligible for the deduction is reduced by any insurance and other reimbursements you receive.
If the insurance covers the entire loss, there’s no tax relief available. Then, you face another daunting obstacle: Your deduction is limited to the excess loss above 10 percent of your adjusted gross income (AGI) after subtracting $100 per casualty or theft event.
For example, let’s suppose you have an AGI of $100,000 for 2017 and you suffered two casualty losses during the year.
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About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.