Is water damage tax deductible?

July 23, 2014 by Dave Du Val, EA
Flooded street with sign that says High Water

Hey Dave,

My house got water in it this past month.  I needed to clean up the mess, replace the carpet, pad and doors.  My insurance would not cover the loss.  Will part or most of the replacement cost be counted as a loss?

 

Dawn

 

Dawn,

I am certainly sorry for your troubles and have experienced the same thing in my own home and in a rental. The basic premise is, if your loss from water damage is a qualified loss, i.e., it was sudden, unexpected, unusual and beyond your control, you would be able to deduct the loss, subject to the certain limitations. Personal casualty losses are subject to a ten percent income limitation, so you will have your deductible loss limited to the amount that exceeds ten percent of your adjusted gross income, then minus $100, which is another limitation on this deduction.  In addition, you would need to itemize on Schedule A to receive a benefit on your tax return.

Loss of property due to progressive deterioration (such as the steady leaking of a pipe from normal wear and tear, or termite damage), would NOT be deductible as a casualty loss. On the other hand, water damage from a pipe that suddenly bursts for no apparent reason would be considered a qualified loss.

 

Deductibly yours,

Dave

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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