Tax Disaster Write-Offs for Damage Could Increase
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Here's your Money Briefing for Monday, October 18th. I'm J.R. Whalen for The Wall Street Journal. Millions of Americans have suffered property damage from weather-related and other disasters this year.
How widespread was disaster damage this year and what dollar amounts are involved?
And while insurance coverage can offset a portion of the costs, some of the remaining expenses can be deducted from income taxes. But that still leaves many with hefty repair bills.
The disaster loss tax rules are some of the most complicated we have, and that's really saying a lot when you're talking about taxes.
Coming up, our tax reporter Laura Saunders will be here to break down the current rules and discuss a proposal that would make it easier to deduct disaster-related expenses. That's after the break.
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Hurricanes, fires, extreme cold. It seems we've been hearing more this past year about damage to property from disasters. The cost can be enormous, even after insurance kicks in. But there's a measure in Congress that would ease the financial burden, not only on property owners in the path of disasters, but some less severe events as well. WSJ tax reporter Laura Saunders has been tracking it, and she joins us now. Laura, thank you for being on the show.
Thanks so much for having me.
What do current tax rules allow for deducting disaster-related losses?
So Laura, when we're talking about damage from storms and other disasters, can you give us a snapshot of the kind of money we're talking about? How much damage have these kinds of disasters caused this year?
Well, billions and billions of dollars. According to the NOAA, we've had 18 separate storms or disasters or fires this year that are over $1 billion of each. And the number of these has been rising through the years. I think last year was the most, but we haven't finished this year yet. So it may be on pace to be even more storms and disasters.
So what do tax laws currently allow people to do regarding losses they've incurred from disasters?
The disaster loss tax rules are some of the most complicated we have. And that's really saying a lot when you're talking about taxes, because they're this kind of crazy quilt of things that are enacted at different times for different purposes and different kinds of storms and disasters and things like that. But the short answer to your question is that we don't have a lot of good coverage for disaster tax deductions right now. because it's very narrow. And lately, Congress has been expanding it every year in response to specific disasters, but they haven't done this for 2021 yet. What's in the tax laws right now? We should say that insurance is always the first line of defense, but deductibles and premiums are going up.
And so the tax deductions are a pretty good backstop. And so you can sometimes get a tax deduction for your unreimbursed losses. You can't ever double dip, but you can get a tax deduction for unreimbursed losses. And you have to measure those. And the other problem right now is that there's this limit in place. It's a 10% of AGI limit. So that if you had $200,000 of income, then you couldn't start deducting unreimbursed losses until you got above $20,000 of unreimbursed losses.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:45
2
How widespread was disaster damage this year and what dollar amounts are involved?
0:45–2:16
3
What do current tax rules allow for deducting disaster-related losses?
2:16–4:22
4
How does the 10% of AGI limit affect disaster loss deductions?
4:22–5:59
5
Which types of disasters qualify under current federal rules for tax deductions?
5:59–7:20
6
What changes is Congress proposing to expand disaster loss tax relief?
7:20–8:30
7
How likely is Congress to enact these tax changes given other legislative priorities?
8:30–8:54
Speakers
3 identifiedMore from WSJ Your Money Briefing
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