@RobertG wrote:
When you have items that are lost or damaged as a direct result of a natural disaster, and you live in a federally declared disaster area , you may be able to take a casualty loss deduction for the value of the property that is not covered by your insurance.
The problem here (beside the fact that the taxpayer just said flood and we don't know if it was a declared federal disaster or not) is that the cost for the rip-rap is not necessarily the amount of the loss.
The amount of the loss is the decrease in fair market value due to the disaster. In simple cases, where property is repaired to its original state, the IRS allows the cost of repairs to stand in for the amount of lost value. But if the repairs or improvements make the property better than it was before the event, then the cost of the improvement can't be used as an estimate of the loss of fair market value. An appraisal may be needed, which may be difficult or require an adjuster experienced with this kind of situation.
For example, if your home or farm is on a flood plain, and the flooding washes away the existing natural levee, making your home more exposed to future flooding, how much does that actually decrease the price you would get if you put the home or farm on the market? That's the amount of loss you can claim if the flooding was part of a federally declared disaster.
Then of course, there is the 10% limit on casualty loss deductions to overcome, and if you do deduct a loss, that subtracts from your cost basis just as making improvements adds to the basis.
