Personal Casualty & Theft Loss Deductions Severely Limited

The following SC&H Group “2018 Tax Roadmap” blog post focuses on the elimination of personal casualty and theft losses, with the exception being casualty losses suffered in a federal disaster area. Learn more about how this may impact you below.

The TCJA made major changes to what individual taxpayers are allowed to claim as itemized deductions, one of those being personal casualty and theft losses. Effective beginning in 2018, this deduction has been eliminated, with the exception of casualty losses suffered in a federal disaster area.

Before the TCJA, individuals could claim certain personal casualty losses − not compensated by insurance or otherwise − as itemized deductions, including losses arising from:

  • Fire
  • Storm
  • Shipwreck
  • Theft
  • Other casualty

There were two limitations to qualify for a deduction: (1) a loss had to exceed $100, and (2) aggregate losses could be deducted only to the extent they exceeded 10% of adjusted gross income.

For tax years 2018 through 2025, the personal casualty and theft loss deduction isn’t available, except for casualty losses incurred in a federally declared disaster. This means a taxpayer who suffers a personal casualty loss from a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act will still be able to claim a personal casualty loss as an itemized deduction, subject to the $100-per-casualty and 10%-of-AGI limitations mentioned above.

Also, in the instance where a taxpayer has personal casualty gains, personal casualty losses can still be offset against those gains, even if the losses aren’t incurred in a federally declared disaster.

The casualty loss deduction helped to lessen the financial impact of casualty and theft losses on individuals. Now that the deduction generally won’t be allowed, except for declared disasters, you may want to review your homeowner, flood, and auto insurance policies to determine if you need additional protection.

Do you want more information on casualty and theft loss deductions, or need assistance assessing the impact of the TCJA? Please contact us if you have any questions as you navigate 2018 tax planning.

2019 Tax Planning