Deducting Disaster Losses on Your Tax Return

By Kimberly Lankford

| Photographs By Vstock LLC

QUESTION: My house was damaged by Hurricane Florence, and I have a 2% deductible on my homeowners insurance, which is about $7,000. Will I be able to deduct the $7,000 on my tax return?

ANSWER: Maybe, but the calculation is complicated and the laws changed this year.

In the past, everyone could deduct unreimbursed casualty losses — whether their home was damaged by a major disaster (such as a hurricane, earthquake or major wildfire) or by a calamity that damaged only their own home (such as a fire). But last year’s tax law changed the rules for 2018 through 2025. Now you can only take the casualty-loss deduction if your home is in a federally declared disaster area. You meet that first hurdle if you live in one of the many counties in North Carolina and South Carolina that the president declared as federal disaster areas (see the IRS’s Help for Victims of Hurricane Florence for a list of eligible counties).

Next, you need to calculate the deductible loss. First you subtract $100 from the unreimbursed loss, then you can deduct the portion of that eligible loss that exceeds 10% of your adjusted gross income. (In 2017, Congress waived the 10% AGI floor for victims of Hurricane Harvey, Irma and Maria and the California wildfires and increased the $100 to $500, but has not made any similar changes for Hurricane Florence.)

Your eligible loss may actually be more than the $7,000 deductible. One way to calculate the loss is based on the actual costs to repair the home to its pre-event condition, or you can base the loss on an estimate from the insurance company, says Tim Steffen, director of advanced planning for Baird Wealth Solutions Group. If your insurer covered all of the damages except the deductible, then you’d use $7,000 as your eligible loss. But there may have been other damages that weren’t covered by insurance, such as flood damage if you didn’t have flood coverage. In that case, you may have a contractor’s estimate showing that the total repair cost will be more than the estimate from the insurer. In that case, your eligible loss may be more than $7,000.

Trish Evenstad, an enrolled agent in Westby, Wis., who is authorized to represent taxpayers in front of the IRS, recommends getting an appraisal showing the loss in value as a result of the disaster. “That way you have solid proof of the value,” she says. This can be particularly helpful if you’re claiming losses beyond the insurance company’s coverage.

You usually have the option to claim the loss in the year it occurred, or you can claim the loss on the previous year’s tax return, which could affect the size of the deduction if your income has changed (the lower your income, the lower the 10% threshold). You may also get your refund much earlier if you file an amended return to claim the loss in the previous year.

The new rules are going to make it difficult for some people whose homes are destroyed and aren’t covered by insurance (such as flood losses if you don’t have flood insurance) and aren’t in a federally declared disaster area. For example, Wisconsin has had major flooding in several areas of the state. “My county was hit hard and many people have lost everything, including their homes,” says Evenstad. “Currently, we have not been declared a federal disaster area, so taxpayers cannot claim the loss and many people will end up filing bankruptcy because of home loans on homes that no longer exist.”

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Copyright 2018 The Kiplinger Washington Editors. This article was written by Kimberly Lankford from Kiplinger and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

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