In 2016, more than 6,700 homes in Harris County incurred damage due to severe storms and flooding. After rebuilding and recovering from the devastation left behind, many people are asking what they can deduct on their taxes.
In order to claim a loss from flood damage, you need to file Form 4684 and Schedule A with your 2016 Form 1040. To figure your loss, you will use the smaller of your basis in the property or the decrease in the fair market value as a result of the flood damage. IRS guidelines provide that the simplest way to determine the decrease in fair market value is to add together all of the expense you incurred getting your home back to similar living condition, less any reimbursement received from insurance and government programs. After determining what loss you may be eligible for, you must reduce the loss by $100, and then again by 10% of your adjusted gross income. This amount is your deductible loss.
If you receive more proceeds from insurance and government programs than your adjusted basis in your home, you must report a gain. However, those in a federally declared disaster area can postpone reporting the gain.
We understand that the rules to calculating and deducting casualty losses can be complicated and overwhelming, and encourage you to reach out to our qualified professionals with any questions.