The Tax Cuts and Jobs Act (TCJA) makes claiming a tax
deduction for a personal casualty loss more difficult.
For
losses incurred in 2018-2025, the TCJA generally eliminates deductions for
personal casualty losses, except for losses due to federally declared disasters.
Special Deduction Timing Election for Losses Due to Federally Declared Disasters
When your casualty loss is due to
a federally declared disaster, a special election allows you to deduct the loss
on your return for the immediately preceding year. If you have already filed
the return for the preceding year, you can file an amended return to make the
election and claim your rightful deduction in the earlier year.
The election must be made by no
later than six months after the due date (without considering extensions) for
filing your federal income tax return for the year in which the disaster
actually occurs. But the election itself must be made on an original or amended
return for the preceding year.
The decision on whether or not to
make the special deduction timing election should be based on an evaluation of
- whether you need cash quickly, and
- your overall tax situation in the loss event year and the preceding year.
Taxwise, the most important factor
is usually your AGI in those two years.
A favorable change included in the
TCJA stipulates that the 10-percent-of-AGI personal casualty loss deduction
threshold does not apply to losses recognized in 2016 and 2017 arising from
federally declared disasters.
Instead, the loss must be reduced
by only $500. Non-itemizers can increase their standard deduction by the
allowable loss.
2016 and 2017 tax returns can be
amended to take advantage of this relief.
If you would like to know about the casualty loss rules and how they might help you, please call me on my direct line at 509-543-7600.