It wasn’t long after Hurricane Matthew had departed and residents began assessing the damage that Peter Reynolds’ phone began to ring.
The managing partner of Ponte Vedra Beach CPA firm The Griggs Group, Reynolds fielded calls from concerned homeowners wondering about the tax implications of the damage their property had incurred.
“I had a feeling that was going to happen as I watched the trees fall down,” Reynolds said.
Fortunately, Reynolds had some good news to share with some of his clients, since in some cases the damage from hurricanes and other sudden unexpected events may qualify for a casualty loss tax deduction.
“If the amount you’re out of pocket compared to your insurance reimbursement is greater than 10 percent of your adjusted gross income, you can take the difference as a tax deduction,” Reynolds explained.
For example, if a tree fell on a home and caused $20,000 worth of damage but the insurance deductible was $10,000, the homeowner would be out of pocket $10,000 for repairs. Assuming that the homeowner had an adjusted gross income of $70,000, he would qualify for a $3,000 tax deduction.
Such a deduction could be particularly important, he noted, to homeowners with damaged docks, which aren’t generally covered by insurance. Homeowners with high insurance deductibles and with homes that are underinsured may also benefit.
“If your home has a major decrease in value, the loss in value is also a casualty loss,” Reynolds added.
In addition, while casualty loss deductions are generally taken during the year in which the loss was incurred, Reynolds said taxpayers have the option of amending the previous year’s return, which could generate a larger deduction if the adjusted gross income was lower than the current year.
“Being able to pick and choose which year to take it in is pretty advantageous,” he said.
Because of the intricacies of the tax code, Reynolds recommends that homeowners consult a CPA or other tax professional if they believe they may qualify for the casualty loss deduction.
“Between big deductibles and underinsured homes, Middle America could really take it on the chin (with storm damage) and potentially could get a big deduction from this.”
