The proper way to deduct loss due to flood damage?

Question

I have a new 3-story townhouse. It is my primary residence and it was flooded with 2 feet of water back in Feb due to heavy rains. 11 other units in my neighborhood also looded. I went the cheapest route I could to repair everything and it cost me approx $4000 but it still isn't 100% of what it was originally. Maybe 95%. Anyway, I saw in an IRS publication that I can not deduct just my repair costs. I have to have had an appraisal and then take the difference in fair market value as the deduction? I had my home owners insurance do an appraisal of the damages but they did no pay anything to me since I did not have flood insurance. What is the right way to deduct my losses?

Answer 1

This is a casualty loss. Take the value of your home just before the flood, subtract the value of your home just after the flood, now subtract any insurance reimbursements and this is your loss. However, all casualty losses are subject to 10% of AGI (adjusted gross income) which means that if you had a $4k loss and you made more than $40K in the year of loss you are probably not eligible for the deduction. If you made less than $40K see a tax advisor for help, but don't count on a big tax relief you will be subtracting 10% of AGI from your total loss to calculate your deduction and then the deduction will decrease your INCOME by the remaining amount, not your tax...sorry, it is a lousy deduction.

Answer 2

It would be a Schedule A deduction (Line 19-2005 form). See also Form 4684. It is then only the amount of loss over 10% of your AGI. It's not a great deduction, but anything helps. If you use Schedule A take advantage of it. See irs.gov for forms and instructions. ACTUAL $$$ LOSS is the key.

Answer 3

Generally this is a casualty loss, however if the flood resulted from Katrina or certain Hurricanes there are special rules for these losses. You should consult a CPA if you are in the later catagories.