Property lost to Volcano. Writing off loss on taxes

[Ruffian13]

I purchased an Acre (no buildings) on the Big Island in December 2017 in the Leilani Estates neighborhood. It was fully landscaped, leveled, and ready to build on with a fruiting food forest and cost $35000. In 2018 the acre was covered by about 40 Ft of Lava as it was only a short distance from Fissure 8 that dumped a few square kilometers of Lava onto the surface of the island. There is no street access or utilities to the property anymore and it is unlikely to be restored any time this decade. The County of Hawaii is trying to buy out many of the affected properties and may buy ours out for 22K (the median Tax value of the property in 2017) if we are lucky. Otherwise we will have to sell out for even more of a loss.

If we sell out this year how would we handle that on the taxes next year? Is Turbotax set up for that? Are there any special tax rules for properties lost to natural disasters?

Thank you for your input!

[pmurphy3]

Recommend that you seek finality on the status of the property.   If the county buys for $22,000 you will have a approximately $13,000 loss which would be a long term capital loss and the deduction limited to $3,000 for the year, if that was your only sale of capital property.  The balance of the loss is used in future years at the rate of $3,000 per year.

If you sell it yourself and the loss is higher, again, you are limited to a loss of $3,000 per year with the balance carried over.   You can use the losses as an offset against any gains you may have on other transactions.

[mikafeed58 · Accepted solution]

Thank you for posting your question! Since the Leilani Estates Neighborhood was included in the Federal Disaster Declaration of May 11, 2018 (DR-4366-HI), casualty losses can be deducted as an itemized deduction on Schedule A (if you are itemizing and not taking the standard deduction). 

Click on the link below for more information from the FEMA website regarding this disaster:

https://www.fema.gov/disaster/4366

TurboTax is certainly set up for this type of deduction: 

https://turbotax.intuit.com/tax-tips/tax-relief/about-casualty-deduction-for-federal-income-tax/

1. Click the "Deductions & Credits" tab
2. Scroll down to "Other Deductions & Credits"
3. "Show More." 
4. You will find the "Disaster, theft...loss" topic there. 
5. DR-4366-HI is the major disaster declaration ID

[Ruffian13]

Unfortunately this link appears broken.

https://turbotax.intuit.com/tax-tips/tax-relief/about-casualty-deduction-for-federal-income-tax/

I get this:

We're sorry, we can't find the page you requested.

You may have incorrectly typed the address (URL) or clicked on an outdated link.