Question

Martin lives in South Carolina, and it has been a rough year for him. In May, Martin’s house caught on fire and he suffered a personal casualty loss of $4,500. Insurance, however, paid Martin $5,000 for the damages. Then, in September, Hurricane Florence destroyed his home, inflicting a $23,000 loss. If Martin’s AGI was $65,000 in 2018, how much can Martin deduct as casualty losses on Schedule A?

Answer 1

Causality loses means loss occurred due to unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Generally, losses are deducted in return in the year it occurred.

Amount of loss: the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured)

In our question, however martin suffered a personal casualty loss of $ 4500 but insurance worth $ 5000 paid for such damages. As insurance amount received by martin more than loss occurred, so no amount is deductible.

$100 rule: After figuring out the casualty loss on personal-use property, loss must be reduced by $100. This reduction applies to each casualty loss event during the year.

10% rule: You must reduce the total of all your casualty losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

As question specified, martin further incur a personal causality loss of $ 23000, so, in reference to above rule,

Personal causality Loss:	$   23000
Less: Deduction ($ 100 Rule)	$    100
Less: 10% of AGI: ($ 65000* 10%)	$     6500
Deduction as casualty Loss on Schedule A	$    16,400