Hurricane Ian DR-4673-FL casualty loss question: We have a significant loss on a rental unit (decrease FMV of $321,250) Will TurboTax automatically switch us to Itemized?

[Sequel95]

Looks like 10% of our AGI might get subtracted from the Decrease or Loss in Fair Market Value- not sure for this disaster. TurboTax is showing a refund vs. an amount we owe, so this is great. But is there a limit to the loss amount, and if so, is there a Net Operating Loss that get carried over to the next tax year automatically by TurboTax?

[MonikaK1]

If your casualty loss deduction is more than your income, you may have a net operating loss (NOL). You don't have to be in business to have an NOL from a casualty. For more information, refer to IRS Topic 515, as well as Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 

If the casualty loss is on a rental property, when entering the casualty loss information in TurboTax, indicate which is for rental property. The rental casualty losses will appear in a different section of Form 4684.

See also this TurboTax tips article regarding casualty losses.

If your casualty loss and other itemizable deductions exceed your standard deduction, TurboTax will automatically use itemized deductions.

 [Edited 03/13/23| 4:11pm PST] 

@Sequel95 (edited) 

[Sequel95]

Thank you Monika. Very by helpful. It would be helpful if I could see the TurboTax data on the IRS forms in question. I’m having a hard time understanding how the loss is used to increase my refund. This property is a rental unit in a condo complex and we are passive investors, as our condo association has a rental office. 

For next year’s taxes, will my NOL be used again for the itemized deductions until it is reduced to zero?

Thanks very much.  

[MarilynG1]

Form 4684 is used to report a Casualty Loss.  Section B is for income-producing property.  If you're using TurboTax Desktop, go to Forms and open the form under 'Forms in My Return' to review the calculations. 

For TurboTax Online, you will need to save a PDF copy of your return to view the form.  The loss flows to Schedule 1, Line 4 and then to Form 1040, Line 8. 

Remember that the amount needed to restore damaged property is the amount of the Casualty Loss.  If you had a condo with a FMV of 500K, for example, that was damaged in a flood and required 200K to restore, your FMV before the loss is 500K, the FMV after the loss is 300K (so your loss is 200K).  Be sure to include the amount you were reimbursed by insurance for your loss.

Yes, any NOL will be included in Itemized Deductions each year until it is used up.  Here's more info on Casualty Loss. 

@Sequel95 

Edited 3/13/2023 | 5:17 pm