Isabella Carter
The Internal Revenue Service (IRS) allows individuals to claim casualty and theft losses as itemized deductions on Schedule A (Form 1040). A casualty loss can result from damage, destruction, or loss of property due to a sudden, unexpected, or unusual event, such as a flood, hurricane, or fire. While personal casualty losses are generally not deductible for tax years 2018 through 2025, they may be claimed for federally declared disasters. Repairs to a property can be used to measure the decline in fair market value caused by a casualty, but they cannot be used to increase the property's value above its pre-loss state. With this context, we can now explore whether AC repair constitutes a casualty loss for the IRS.
| Characteristics | Values |
|---|---|
| What constitutes a casualty loss? | A casualty loss is a sudden, unexpected, or unusual loss or damage to property you own. Examples include fires, floods, hurricanes, and accidents. |
| What is not considered a casualty loss? | Normal wear and tear or progressive deterioration is not considered a casualty loss. Loss of future earnings or extra living expenses due to personal property damage is also not included. |
| When can you claim a casualty loss deduction? | For tax years 2018-2025, personal casualty losses are generally not deductible unless caused by a federally declared disaster. Qualified disaster losses can be claimed on Form 4684. |
| How do you calculate a casualty loss? | You must determine the fair market value of the property before and after the casualty and compare it with the adjusted basis. From the smaller amount, subtract any insurance or other compensation received or expected. The cost of repairs may also be used to measure the decline in fair market value. |
| What is the process for claiming a casualty loss? | Individuals can claim casualty losses as an itemized deduction on Schedule A (Form 1040). The loss must first be reported on IRS Form 4684, Casualties and Thefts. |
| How does reimbursement affect the casualty loss calculation? | Any insurance or other reimbursement received or expected must be subtracted from the casualty loss amount. If the reimbursement exceeds the adjusted basis, it may result in a gain rather than a loss. |
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What You'll Learn
AC repair and casualty loss requirements
AC repair can constitute a casualty loss for the IRS, but only under certain conditions. Firstly, it's important to understand what constitutes a "casualty loss". According to the IRS, a casualty loss is a sudden, unexpected, or unusual event that causes damage or loss to your property. Examples of such events include natural disasters like floods, hurricanes, tornadoes, fires, earthquakes, and volcanic eruptions.
Now, let's discuss how AC repair fits into this definition. If your air conditioning unit is damaged or destroyed due to one of the aforementioned events, then the cost of repairing or replacing it could be considered a casualty loss. However, it's important to note that normal wear and tear or progressive deterioration is not considered a casualty for tax purposes. Additionally, the loss must be related to your personal property or a trade or business, and not to a transaction entered into for profit.
To claim a casualty loss deduction, you must complete and file Form 4684, Casualties and Thefts, with the IRS. This form requires you to compare the cost or other basis of the property before and after the casualty, reduced by any insurance or other reimbursement you receive or expect to receive. You may also need to provide an appraisal to determine the decrease in fair market value of the property due to the casualty.
It's worth mentioning that there are special rules and procedures for claiming qualified disaster-related personal casualty losses. For example, the Federal Disaster Tax Relief Act of 2023 extended the special rules for personal casualty losses attributable to certain major federal disasters declared between February 26, 2021, and February 10, 2025. Additionally, individuals may claim their casualty losses as an itemized deduction on Schedule A (Form 1040), Itemized Deductions.
In summary, AC repair can constitute a casualty loss for the IRS if the damage is caused by a sudden, unexpected, or unusual event, and the repair costs are not covered by insurance or other reimbursements. It's important to review IRS Publication 547, Casualties, Disasters, and Thefts, as well as Form 4684 instructions, to ensure you meet all the requirements for claiming a casualty loss deduction.
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IRS Form 4684
For tax years 2018 through 2025, personal casualty losses are generally not deductible unless caused by a federally declared disaster. If the loss is caused by a federally declared disaster, individuals may deduct personal casualty losses related to their home, household items, and vehicles on their federal income tax return. When reporting a casualty loss, individuals must reduce the loss by any salvage value and by any insurance or other reimbursement received or expected to receive.
To determine the amount of the casualty loss, individuals can either use the decrease in the fair market value of the property due to the casualty or the cost of repairing the property. If the property is completely destroyed, the amount of the loss is the adjusted basis of the property minus any salvage value or insurance or other reimbursement received or expected to receive.
If an individual is claiming qualified disaster losses for multiple qualified disasters or in more than one federally declared disaster area, a separate IRS Form 4684 must be completed for each event. Additionally, if an individual is also filing IRS Form 6251, Alternative Minimum Tax, they must review the additional guidance contained in the form instructions.
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Deducting personal casualty losses
Personal casualty losses refer to losses from casualty, disaster, and theft that are not connected to a trade or business, or a transaction entered into for profit. A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. It is important to note that a casualty does not include normal wear and tear or progressive deterioration.
For tax years 2018 through 2025, personal casualty losses are generally not deductible unless caused by a federally declared disaster. If the loss is caused by a federally declared disaster, you may deduct personal casualty losses relating to your home, household items, and vehicles on your federal income tax return.
To deduct personal casualty losses, individuals may claim their losses as an itemized deduction on Schedule A (Form 1040), Itemized Deductions. For property held for personal use, you must subtract $100 from each casualty or theft event that occurred during the year, after subtracting any salvage value and any insurance or other reimbursement. Then, add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year.
It is important to note that you may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement and reduce the loss by the amount of any reimbursement or expected reimbursement. You can only deduct casualty losses that are not reimbursed or reimbursable by insurance or other means. The net qualified disaster loss (the qualified disaster loss less personal casualty gains) may be claimed as an additional standard deduction.
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Casualty loss and property types
A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. This includes losses from casualty, disaster, and theft that are not connected to a trade or business or a transaction entered into for profit.
Personal casualty losses are generally not deductible for the tax years 2018 through 2025, except in the case of a federally declared disaster. In such cases, individuals may deduct personal casualty losses relating to their home, household items, and vehicles on their federal income tax return. For example, if your home is damaged in a federally declared disaster, you may be able to deduct the cost of repairing the damage from your taxes. This would include the cost of repairing or replacing household appliances, as long as the repairs or replacements do not increase the value of your home above its pre-loss value.
If you have a pending claim for reimbursement or intend to pursue reimbursement for a casualty loss, you may have income or an additional deduction in a later tax year, depending on the actual amount of reimbursement received. It's important to note that you must reduce the loss by any salvage value and any insurance or other reimbursement you receive or expect to receive.
For business or income-producing property, such as rental property, if it is completely destroyed, the amount of your loss is your adjusted basis minus any salvage value or insurance or other reimbursement you receive or expect to receive. In the case of mixed-use property, such as a home office or a car used sometimes for business, the loss must be proportionately divided between the two types of usage.
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Calculating casualty loss
The IRS defines a casualty as damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. It is important to note that a casualty does not include normal wear and tear or progressive deterioration.
To calculate a casualty loss, you must first determine the adjusted basis of your property, which is typically your cost, increased or decreased by certain events such as improvements or depreciation. Next, you need to calculate the decrease in the fair market value (FMV) of your property due to the casualty. This can be done through a competent appraisal that considers the property's FMV immediately before and after the casualty, accounting for any general market decline. Alternatively, if certain conditions are met, you may use the cost of repairing the property as the decrease in FMV.
If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of the adjusted basis of your property or the decrease in FMV due to the casualty. However, if your property is business or income-producing, such as rental property, and is completely destroyed, the amount of your loss is your adjusted basis minus any salvage value, insurance, or other reimbursement received or expected to receive.
For personal casualty losses, there are additional considerations. From 2018 to 2025, personal casualty losses are generally not deductible unless they are caused by a federally declared disaster. In such cases, you may deduct losses relating to your home, household items, and vehicles. Additionally, you must reduce the loss by any salvage value, insurance, or other reimbursement received or expected to receive. For each casualty event, you subtract $100 and any reimbursements from the loss amount, then subtract 10% of your adjusted gross income to calculate your allowable casualty loss for the year.
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Frequently asked questions
A casualty loss is a sudden, unexpected, or unusual loss or damage to property you own. Examples include earthquakes, hurricanes, tornadoes, floods, and fires.
Personal casualty losses are losses from casualty, disaster, or theft that are not connected to a trade or business or a transaction entered into for profit. Federal casualty losses refer to federally declared disasters.
To calculate a casualty loss, you must determine the fair market value of the property before and after the casualty and compare it with the adjusted basis of the property. From the smaller of these two amounts, subtract any insurance or other compensation received or expected to receive.
AC repair can constitute a casualty loss for the IRS if it meets the criteria for a casualty, disaster, or theft loss and is not covered by insurance. The loss must be reported on IRS Form 4684, Casualties and Thefts.
