No one likes to think about bad things happening, but happen they do, as seen in severe winter storms in Delaware and New Jersey, spring floods in Texas and Mississippi, and flooding, landslides, and mudslides in West Virginia. Natural disasters, accidents, illnesses, and now terrorist activities, such as the Pulse incident in Orlando, and war all present serious personal and financial threats that can become reality. When faced with such catastrophes, insurance may carry you just so far, with economic losses outstripping your insurance recoveries. But you may be able to mitigate your financial losses with certain tax write-offs.
This chapter explains the tax rules related to insurance and catastrophes. Mortgage insurance is covered in Chapter 4. Losses to your bank deposits are discussed in Chapter 8. For more information, see IRS Publication 547, Casualties, Disasters, and Thefts (Business and Nonbusiness); IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property); and IRS Publication 2194, Disaster Resource Guide for Individuals and Businesses.
Casualty and Theft Losses
Things happen beyond man's control, such as hurricanes and wildfires, that damage or destroy property. If there is insurance it may only partially cover the loss. The tax law allows a deduction for losses resulting from a casualty event or theft. But strict rules apply to limit the amount of the write-off.
If you suffer property ...