Tax reform has eliminated a taxpayer’s deduction for personal casualty losses unless the loss occurs in a federally-declared disaster area. Many taxpayers may consider contacting their insurance provider to determine they are adequately covered in the event of a loss.
In the past, an individual could claim as an itemized deduction certain personal casualty losses that were not compensated by insurance or other means. These casualty and theft losses must have been related to your home, household items or vehicles; and included losses from storms, fire, theft and even shipwreck. Total casualty losses may be deducted if they exceeded 10% of adjusted gross income, and were more than $100 for each occurrence.
The new Tax Cuts and Jobs Act has eliminated the personal casualty and theft loss deduction for tax years 2018 through 2025, except for casualty losses incurred in a federally-declared disaster area. The deduction for declared disaster area losses are subject to the former $100-per-casualty and 10%-of-AGI limitations.
These tax deduction changes may motivate taxpayers to review homeowner, flood and auto insurance policies to determine whether they should add coverage knowing there will be no casualty deduction unless the precipitating event is so catastrophic and widespread that it prompts a federal declaration.
It may also be prudent to learn whether your policy pays replacement cost coverage or actual cash value. Contact our office with any questions about the tax implications of this change, or contact your insurance agent for questions about changing your coverage.