Personal Finance

Tax break for disaster losses largely disappears in tax law

Key Points
  • 72,323 filers claimed casualty losses on their 2015 tax returns.
  • Half of all home heating fires occur in December, January and February.
  • Starting in 2018, you can claim losses only for federally declared disasters.
President Donald Trump speaks about the passage of tax reform legislation on the South Lawn of the White House in Washington, DC, December 20, 2017.
Saul Loeb | AFP | Getty Images

If you lose your home to a fire next year, you may not be able to claim it on your taxes.

The Tax Cuts and Jobs Act, the tax overhaul President Donald Trump recently signed into law, limits the extent to which filers can take a tax break for personal casualty and theft losses.

Under current law, a taxpayer can claim an itemized deduction for property losses that aren't reimbursed by insurance and that stem from natural disasters, fires, accidents or other events. The total of your losses on personal property must exceed 10 percent of your adjusted gross income.

With the new law, taxpayers may claim personal casualty losses only if the damage is attributable to a disaster declared by the president. This limitation starts in 2018 and will expire at the end of 2025.

A total of 72,323 filers claimed casualty and theft loss deductions on their 2015 tax returns, the most recent data available, according to the IRS.

"Floods occur almost monthly across this country and there are home fires where people are financially devastated," said Douglas J. Lyons, managing director of Oceanic Capital Management in Red Bank, New Jersey.

"To not be able to use this one simple tax relief to help people get back on their feet is going to be really painful," he said.

Jose A. Teijeiro | Getty Images

The winter season is particularly perilous for home fires: Half of all home heating fires take place in December, January and February, according to the National Fire Protection Association.

For each year between 2011 and 2015, U.S. fire departments responded to an average of 200 home fires that started with Christmas trees, the NFPA found.

Here are some steps you can take to protect your finances from a disaster.

Know your coverage

In order to save on homeowners insurance premiums, purchasers can raise their deductibles – the amount of money they'll need to pay out of pocket toward damages before the insurance company will cover the damage.

"If you raise your deductibles, you save on premiums, but you can't deduct that higher out-of-pocket cost," said Greg McBride, chief financial analyst at (Click on graphic to enlarge.)

Be aware of your deductibles, and be sure that you have cash on hand to cover that expense in the event of an emergency.

"The best self-insurance is savings," said McBride. "The more savings you have, the better position you're in to take a larger deductible policy that reduces premium cost."

Review your policy

In the event of a disaster, will your insurer reimburse you for a hotel stay or a rental home if you're displaced? Be sure to review your limits, which can be in the form of a per diem or a flat dollar amount.

Know whether your policy includes replacement cost coverage or actual cash value.

With replacement cost coverage, the insurance company will foot the bill for replacing your damaged items at today's prices.

Getty Images

With "actual cash value," your insurance company will cut your reimbursement to factor in depreciation of the items.

Photograph everything

To smooth your claims process, be sure to document all of your belongings, particularly high-end valuables — such as art and jewelry — that may require an endorsement or rider from your insurance company.

"Take photographs or a video of every room in your house so you can take an inventory," said Lyons of Oceanic Capital Management.

"The insurer will place a higher value on your saying you lost something when you can show them a picture of the item in your living room," he said.

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