Water damage in Gilbert AZ due to a flood or other event is often sudden and can result in an unexpected financial burden. Homeowners should seek avenues through which they can mitigate this loss. A common question many taxpayers have is does water damage allow for a deduction on your personal taxes.
The answer is that it depends.
Casualty Loss Deductions
The IRS allows for a casualty deduction for your property loss. Casualty losses are those losses that are sudden, unexpected or unusual. A flood is generally an example of an event that is at least sudden even if not unexpected or unusual. Such deductions are limited to unrecoverable losses, which means that you have an obligation to seek reimbursement for the water damage through insurance and to declare it to the IRS.
Normal Wear and Tear
Such deductions do not extend to wear or tear. If you have a roof that springs a leak during a bad storm and leads to water damage in the home, then such an event will generally be deemed progressive deterioration. On the other hand, if the storm knocked over a tree that damaged the roof and led to water damage, then that would generally be deemed a casualty loss.
If your property is insured, then you must file an insurance claim. If you choose not to file an insurance claim, then you are not eligible for a casualty loss deduction. Water damage specialists often recommend contacting your insurance company right after you’ve contacted them for help.
Actual Loss and When to Deduct
Generally, you can only deduct water damage or any other casualty loss in the year in which it occurred, but there are scenarios in which delays are allowed by the IRS.
The concept of the casualty loss deduction is to protect taxpayers from sudden property losses. This protection is limited to actual losses. So, you can only claim the cost of water damage remediation not covered by the insurance company. You can generally deduct your insurance deductible. You must also deduct $100 from any casualty loss deduction as well as 10 percent of your adjusted gross income.
As of the 2017 tax changes, any casualty loss deduction that is greater than $500 is easier to claim than in years past. The first $500 is considered part of the standard deduction, and any amount beyond $500 increase the standard deduction the property owner is allowed to take.