Claiming Hurricane Losses- Hurricane Zeta Major Storm Disaster

[skripekr]

My question is on Casualty and Loss: 

We sustained damage to our house where the insurance company declared our roof a total loss as a result of Hurricane Zeta (declared Major Storm disaster.)  Our deductible is greater than our loss and we have not replaced the roof as yet.  We also sustained storm damage to one of our vehicles.  

How would we claim that on TY2020? 
The cost of roof replacement is greater than our loss or the deductible.  

What documents are required?

[MaryK4]

You can enter that as a Property and Casualty Loss.  TurboTax will ask the questions to get the information for the forms and deductible amount.

If you have a qualified disaster loss you may elect to deduct the loss without itemizing your deductions. Your net casualty loss doesn't need to exceed 10% of your adjusted gross income to qualify for the deduction, but you would reduce each casualty loss by $500 after any salvage value and any other reimbursement. Casualty losses are deductible in the year you sustain the loss, which is generally in the year the casualty occurred.

See About Casualty Deduction for Federal Income Tax for more information.

[skripekr]

Thank-you
To be clear, is it the replacement cost or the insurance estimate figure we use?  We haven't replaced and costs are rising.

In the event of an audit, what documents would we need to have on hand?

[DaveF1006]

It depends. According to this document from IRS.org, the amount of loss is determined by the lesser of:

• The adjusted basis of your roof or vehicle, or
• The decrease in fair market value of your property as a result of the casualty.

In this instance since we are talking about the roof, the value should be determined by an appraisal on what it would cost to repair the roof. Please read this IRS publication for more details especially in the part where it mentions the estimated cost repair method. Here it mentions  "two repair estimates prepared by separate and independent licensed contractors. The estimates must detail the itemized costs to restore your property to its condition immediately before the casualty. The estimated repair cost safe harbor method is limited to casualty losses of $20,000 or less." 

There are also mentions of Replacement cost safe harbor method for federally declared disasters. The replacement cost safe harbor method for federally declared disasters allows you to determine the FMV of your personal belongings located in a disaster area immediately before a federally declared disaster to figure the amount of your casualty or theft loss. To use the replacement cost safe harbor method, you must first determine the current cost to replace your personal belonging with a new one and then reduce that amount by 10% for each year you have owned the personal belonging. See the Personal Belongings Valuation Table in Revenue Procedure 2018-08. If you choose to use the replacement cost safe harbor method, then you must use that method for all your personal belongings, with certain exceptions identified in Revenue Procedure 2018-08. " 

The point of all this is that there are several safe harbor elections you may take that are mentioned in this publication, especially for federally declared disaster areas. read this thoroughly and you can decide which course of action to take. You can apply this to both your car and your roof. 

As far as documents to prepare, the best way is to have your estimates read, insurance reimbursement  information, appraisals, and other information you think is pertinent after reading the IRS publication 547.  Hopefully I have presented enough information to get you started on the right track.

[Edited 04-06-2021|04:40 PM PST]