2017 has been a banner year in the weather disaster category: multiple hurricanes, floods, epic brush fires and more. It all adds up to a lot of Americans falling victim to property losses. With that in mind, the Internal Revenue Service has issued guidance that provides safe harbor methods individuals can use in determining the amount of their casualty loss for homes and personal belongings.
The safe harbor methods are spelled out in Revenue Procedure 2018-08. Four of the methods may be used for any qualifying casualty or theft loss; three are specifically targeted at losses from a federally declared disaster.
For instance, one of the safe harbor methods allows a homeowner to determine the amount of loss, up to $20,000, by obtaining a contractor’s estimate of repair costs. Another safe harbor method allows a homeowner to determine the amount of loss resulting from a federally declared disaster using the repair costs on a signed contract prepared by a licensed contractor. The guidance also provides a handy table for determining the value of personal belongings damaged, destroyed or stolen as a result of a federally declared disaster.
Another safe harbor method, contained in Revenue Procedure 2018-09, allows taxpayers to use one or more cost indexes to determine amount of loss due to Hurricane Harvey, Hurricane Irma or Hurricane Maria during 2017. The indexes contain tables with per-square-foot costs for Texas, Louisiana, Florida, Georgia, South Carolina, Puerto Rico and the U.S. Virgin Islands.
Safe harbor methods in Revenue Procedure 2018-08 were effective on December 13; those in Revenue Procedure 2018-09 are specifically effective for the 2017 hurricane and tropical storm damage in the federally declared disaster areas after August 22, 2017.
IRS Publication 547 provides more information on casualty and theft losses.
If taxpayers want to explore claiming losses by filing an original or amended return for Tax Year 2016, the IRS has also issued a new revision of the 2016 Form 4684 and 2016 Instructions for Form 4684. The 2017 revision of Form 4684, its instructions and any additional information will be available before the start of the filing season at IRS.gov/Form4684.