Experiencing a flood in your home is one of the most damaging and devastating events that can happen to a homeowner. There are separate processes involved with water damage clean up, including the water extraction, followed by the repairs to the buildings structure. This restoration can be costly and often create a financial burden on an individual. Homeowners explore options in which they can minimize the expense. If you have suffered water damage as a homeowner in the past year, you may be wondering if such a catastrophe is tax deductible. Unfortunately, there is not a clear-cut answer to this question because it depends on the situation. Below is a list of circumstances in which a tax deduction as a compensation for water damage is permitted and when it is not.
Casualty Loss- A casualty is defined as an accident, mishaps, or disaster. These include events that are sudden and unexpected. In the case of a flood, a homeowner would be eligible for casualty deduction. These deductions are limited to unrecoverable damage and losses.
Normal weathering- Normal wear and tear is not considered taxable. For example, an aged roof may experience a leak after a storm, which leads to water damage inside the home. This is considered gradual deterioration. However, if a storm provoked a tree to land on a home and created water damage, a homeowner may be eligible for a tax deduction. In this case, the water damage would be considered a casualty loss.
Insurance Claim- Filing an insurance claim is an important step a homeowner must take after experiencing water damage. Oftentimes, a water damage specialist is hired to evaluate the damage that has occurred and provide assistance through the entire restoration process. Generally, these experts will instruct the homeowner to file a claim during this time. If an individual does not file an insurance claim, they are no longer eligible for a deduction on the basis of a casualty.
Time Frame- In order for a homeowner to be qualified for a casualty deduction, the accident should have occurred within the last year. However, the IRS has granted acceptance for some scenarios that didn’t meet this time frame.
Actual Losses- A homeowner is only able to claim the damages not covered by insurance. The purpose of a loss deduction is to cover actual losses. Additionally, deducting your insurance deductible is allowed. Once you have determined your actual loss, you must then reduce it by $100 for each casualty event. It is reduced again by 10 percent of your adjusted gross income. This final net result is what a homeowner can claim on their tax return. If the amount is negative, you are not eligible for the deduction.
One Restore is a Water Restoration Company in Central Florida. We have experience with disasters that result in fallen trees, water damage, mold damage and more. We handle everything from roof repair and replacement, to water extraction, dehumidification, dry out, reconstruction, and mold treatment. We do not stop there. If the interior of your home is compromised, we can provide remodeling services as well.
In the unfortunate event that your home has suffered a catastrophe or even simple deterioration, contact our experts at OneRestore! We are a one stop shop, offering assistance from start to finish.