IRS offers some deductions, but rules are complicated
Houstonians whose homes flooded are likely focusing on trying to find contractors to repair their damaged properties. The tax implications of Hurricane Harvey probably hasn’t crossed their minds.
But there may be some relief from the Internal Revenue Service, which allows people sustaining losses to homes and vehicles to deduct some of the losses from their federal income tax returns.
But the rules are complicated. It’s not a simple write-off to compensate taxpayers for the money they had to pay for damages that insurance didn’t cover.
Instead, the IRS requires taxpayers to calculate the difference in the fair market value from before the flood to after the flood and then subtract any insurance payments. Fair market value reflects the price a willing seller could expect to receive from a willing buyer.
The total is then adjusted further downward by subtracting 10 percent of adjusted gross income. The IRS also requires taxpayers to subtract $100 for each loss.
Say, for example, you’re out of pocket $10,100 after insurance paid its portion. Subtract $100 from the loss, and you’re left with $10,000. Then subtract 10 percent from your adjusted gross income of $40,000, or $4,000. You can claim a deduction of $6,000.
To receive the deduction, taxpayers must itemize. Those who take the standard deduction are not eligible. Taxpayers must also file a timely claim with their insurance company for reimbursement if they have insurance, according to the IRS.
Other disaster related expenses such as moving and storage, buying generators and renting temporary housing are not eligible to be included in the loss calculation, according to the tax preparation software TurboTax.