Rental property damaged by hurricane Harvey

[leekwok]

I have a rental property damaged by hurricane Harvey. I spent $25K to fixed the damaged property, because I do not have flood insurance. Can I report $25K for repair in Business Income and Expenses for Rental? Also can I claim Casualty Loss for this damaged rental property as well? Thanks

[Coleen3]

You can claim the money you spent for repairs under repairs on your Schedule E. You can't claim both a loss and an expense for the same amount. Taking the repair is the easier and best way to recoup your loss.

Measuring a Casualty Loss

How do you measure the amount of damage to your property? The IRS measures a casualty loss using a rather conservative yardstick. 

You must use the lesser of either:

• the property's adjusted tax basis immediately before the loss, or
• the property's decline in fair market value due to the casualty.

IRS Form 4684, Casualties and Thefts requires you to compare these two figures and will only allow you to deduct whichever is lower.

This means that if your property has increased in value since you purchased it, you're out of luck: you can only deduct the property's cost. However, if your property has decreased in value, your loss is limited to the lower current value.

Edited for SS 4/2/18

[leekwok]

Do you think claim casualty loss for rental property will give you a better return? If I claim the loss in the repair for the rental property, it only offset up to the rental income, which my rental income for 2017 is less than $9K. Thanks

[Coleen3]

You can try. It is not a simple dollar for dollar event. See the measuring the loss above. Whatever amount of loss you are able to take, you must reduce your basis by that amount. See the screen shot in the original answer.