Tax Deductions for Disasters

[ExFlyBoy5]

Long story short, we have a fairly large lot and had an ice storm a couple of weeks ago. Thankfully, there wasn't any damage to the home, but we lost a LOT of very beautiful and mature trees. The trees were one of the selling points of the house and there is no real way to replace what we have lost (at least not for many, MANY years). We are still working on getting them removed and cleaned up but to date we have had to remove almost 30 trees.

Our neighbor mentioned that there is a deduction available for loss of value for the home. I have read up on this a little bit, but like all things IRS...information is confusing.

So, a couple of questions. Has anyone taken this deduction and if so, can you share a "Cliff Notes" version? We also own a large wooded lot behind our primary lot which also lost a lot of trees but we aren't having them dealt with at this time. Can the diminution of this lot also be deducted? Lastly, I don't recall these questions on the tax software I use (TaxAct) but I would guess that it is addressed in some way. True?

Edit: While it hasn't been declared a national disaster as of yet, we anticipate the approval eventually since the state/counties have far exceeded the statutory monetary requirement. I think the POTUS hasn't had time to sign off on it because he's busy doing other things.

Thanks all!

 

[pb4uski]

Never done it and not very familiar with it but it looks like you may be able to claim a casualty loss for the decrease in the value of the property (before and after) based on a knowledgable appraisal. I'm guessing that it is likely that whatever you do will be audited.

https://www.irs.gov/pub/irs-pdf/p547.pdf

 

[ExFlyBoy5]

Never done it and not very familiar with it but it looks like you may be able to claim a casualty loss for the decrease in the value of the property (before and after) based on a knowledgable appraisal. I'm guessing that it is likely that whatever you do will be audited.

https://www.irs.gov/pub/irs-pdf/p547.pdf

Well, I expect to be audited every year even though all my taxes are completed as legitimately as I can so not too concerned about it. I have read through the instructions, but they..uh, yeah they SUCK.

 

[Onward]

I don't think you can take any casualty-loss deductions until your area becomes a federally-declared disaster area.

That's a fairly recent change to the tax code.

 

[jebmke]

I don't think you can take any casualty-loss deductions until your area becomes a federally-declared disaster area.

That's a fairly recent change to the tax code.

pretty sure this was part of the miscellaneous category that was nuked in 2017.

 

[cathy63]

This may help: https://www.irs.gov/businesses/smal...s-casualty-loss-valuations-and-sections-165-i Scroll down to "Q: How does a taxpayer determine a casualty loss from damaged trees and other landscaping on personal-use residential property when that loss is attributable to a disaster?"

Since you say you can't bring the property back to its previous value via cleanup, you probably would have to get before and after appraisals to determine your actual loss.

In order to figure out if it's worth doing that, you can take a stab at filling out form 4684 (here: https://www.irs.gov/pub/irs-pdf/f4684.pdf) by making some guesses as to the FMV of the property before and after the storm. Form 4684 is actually pretty straightforward if you ignore all the edge cases and exceptions in the instructions. Don't forget to include the value of any downed wood you sell or keep for firewood or mulch on line 4.

Once you've completed form 4684, then you also need to fill out Sched A (https://www.irs.gov/pub/irs-pdf/f1040sa.pdf). Calculate the difference between the deduction you'd take if you include the loss and the deduction without it. Multiply that by your marginal tax rate. If that number is greater than the cost of getting an appraisal, then it's worth proceeding.

For example, if you would normally take the standard deduction for MFJ taxpayers under age 65, that's $24,800. If your casualty loss brings your itemized deductions up to $30,000 and your marginal tax rate is 20%, you would save (30,000-24,800)x20% = $1200 by claiming the casualty loss. But if you need an appraisal to substantiate the loss and it costs more than $1200 to get it, you'll end up spending more than you save.

 

[cathy63]

pretty sure this was part of the miscellaneous category that was nuked in 2017.

It's still on the 2019 Sched A line 15. "Casualty and theft loss(es) from a federally declared disaster (other than net qualified disaster losses). Attach Form 4684 and enter the amount from line 18 of that form. See instructions" https://www.irs.gov/pub/irs-pdf/f1040sa.pdf