Should we leave benefits on the table?
Natural disasters like hurricanes and floods can leave homeowners with hefty repair bills. For those living on the East Coast, where hurricane activity is expected to increase in 2024 and 2025, it’s important to understand that tax relief may be available. The IRS offers tax deductions for repairs related to casualty losses, which include damages from events like storms, floods, and other natural disasters. Here’s what you need to know about claiming tax deductions for home repairs following a disaster.
What Qualifies as a Casualty Loss?
A casualty loss is defined as damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. This includes hurricanes, floods, tornadoes, and earthquakes. Casualty losses do not include damage from gradual deterioration, such as wear and tear or termite damage.
- Examples of qualifying events:
- Hurricanes and tropical storms
- Floods and flash flooding
- Tornadoes
- Earthquakes
For instance, if your roof or foundation sustains damage from flooding during a hurricane, the cost to repair it may be eligible for a deduction(Climate Prediction Center)(NOAA).
Steps to Claim a Casualty Loss Deduction
To claim casualty losses on your taxes, you need to follow a series of steps to ensure the proper documentation and filing.
- Document the Damage:
- Take detailed photos of the damage before repairs are made.
- Keep records of all repair costs, including receipts from contractors and material purchases.
- Record any insurance reimbursements, as these will need to be subtracted from your deductible amount.
- Calculate the Loss: The deductible amount is calculated based on the value of your property before and after the event, minus any insurance payouts or other reimbursements. Additionally, the loss must exceed 10% of your adjusted gross income (AGI) before it can be deducted.
- Use IRS Form 4684: Homeowners must use IRS Form 4684 (Casualties and Thefts) to report losses. This form will help you calculate the deductible amount of the casualty loss after insurance reimbursements.
- Special Rules for Federally Declared Disaster Areas: If your area has been designated as a federally declared disaster area (which often happens after hurricanes), you can claim the loss either in the tax year the disaster occurred or on the previous year’s tax return. This can result in an expedited refund, helping you recover financially sooner.
- Check for disaster declarations on the FEMA website(National Hurricane Center)(NOAA).
Insurance Reimbursements and Deductions
If your insurance covers part or all of the repairs, you must subtract this reimbursement from the total deductible amount. However, you can still claim a deduction for any expenses not covered by insurance, such as your insurance deductible or repairs that exceed coverage limits.
What Home Repairs Are Deductible?
- Immediate repairs made to restore your home’s functionality are typically deductible. These can include:
- Roof and foundation repairs due to flooding
- Replacing or repairing broken windows, doors, and walls
- Debris removal and clean-up costs
- Non-deductible items: Upgrades or improvements that increase your home’s value beyond pre-disaster conditions are not deductible. For example, installing high-end countertops during kitchen repairs wouldn’t qualify for a deduction(NOAA)(Climate Prediction Center).
What If You Receive Federal Assistance?
If you receive federal disaster relief or a grant from FEMA, this amount will also need to be deducted from your total claimable loss. Keep detailed records of any funds received to ensure accurate reporting to the IRS.
State-Level Tax Relief
In addition to federal tax deductions, some states provide their own forms of tax relief for disaster-related home repairs. Be sure to check with your state’s Department of Revenue for specific guidelines and available deductions.
- Visit State Tax Resourceshttps://www.irs.gov/taxtopics/tc515 for more information on what’s available in your state.
Final Thoughts
Navigating the aftermath of a natural disaster is challenging, but understanding your options for tax deductions can ease the financial burden of home repairs. Be sure to document everything, calculate your deductible amounts accurately, and consult a tax professional to ensure you’re making the most of available deductions. For further guidance on disaster-related tax relief, visit the IRS Casualty Losses page.
