House Democrats Look to Repeal Casualty-Loss Deduction Limit

Sept. 13, 2021, 9:26 PM

House Democrats are seeking to repeal the 2017 tax law restriction on deducting losses associated with floods, hurricanes, fires, and other unexpected events.

The tax code allows people to claim an income tax deduction for home, vehicle, and personal property losses associated with theft and a host of unexpected natural events. The 2017 tax law included a temporary restriction that limited the availability of the casualty loss deduction to federally declared disasters.

The House Ways and Means Committee, in a 645-page proposal released late Friday, proposed a repeal of that restriction, which is otherwise slated to expire in 2025. The House proposal, part of a tax-and spend package Democrats aim to advance this fall, would be retroactive to losses suffered beginning in 2018.

While that would allow people to go back and claim deductions as though the limit never existed, Louisiana-based CPA and disaster accounting expert Gerard Schreiber said the benefits of a repeal would be somewhat limited in practice because of other tax code restrictions, including not allowing deductions for losses covered by insurance. Under current law, personal casualty or theft losses are deductible only if they exceed $100 per casualty or theft. For more than one casualty or theft, losses are only deductible if they exceed 10% of an individual taxpayer’s adjusted gross income (AGI) and that amount is more than $500.

“The problem around here with this is that the insurance companies have such high deductibles on windstorm damage,” Schreiber said Monday. “If I got a 10% AGI limitation, then I’m footing the entire bill myself. And I’m not getting any any kind of tax relief.”

Guidance Requirement

The House proposal includes language instructing the Treasury Department to issue guidance offering relief to people whose home foundations were damaged by the presence of the mineral pyrrhotite. When the mineral is exposed to oxygen and water, it breaks down and can causes large cracks that over time can damage buildings.

As many as 34,000 homes in northeastern Connecticut constructed from 1983 to 2000 may have concrete foundations containing pyrrhotite and are at risk of cracking or crumbling, according to FEMA.

Generally, the casualty loss deduction can’t be used for damage caused over time, like erosion. But the House bill instructs Treasury to issue regulations or guidance consistent with a 2018 IRS revenue procedure that allowed a temporary exception for payments to repair damage caused by pyrrhotite-related foundation deterioration before Jan. 1, 2018.

To contact the reporter on this story: David Hood at dhood@bloomberglaw.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; David Jolly at djolly@bloombergindustry.com

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