Studio City Property Manager
Tax Impact of Disasters for Rental Property:
Deducting Losses from a Disaster
Insurance is always the first line of financial defense when disasters occur. However, not all rental properties are fully covered for losses due to natural disasters. Some types of losses may not be covered at all. For example, losses due to floods, hurricanes, and earthquakes may not be covered unless the property owner has obtained a supplemental policy. Even if a loss is covered, the property owner may still have to pay for part of the cost of repairing or replacing the rental property.
Fortunately, any uninsured casualty losses are deductible by rental property owners, subject to certain limitations. A “casualty” is damage, destruction, or loss of property due to an event that is sudden, unexpected, or unusual. Deductible casualty losses can result from many different causes, including (but not limited to):
- Earthquakes
- Fires
- Floods
- Government-ordered demolition or relocation of a building that is unsafe to use because of a disaster
- Landslides
- Sonic booms
- Storms, including hurricanes and tornadoes
- Terrorist attacks
- Vandalism, including vandalism to rental properties by tenants
- Volcanic eruptions
One thing that all of the events in the above list have in common is that they are sudden—they happen quickly. Suddenness is the hallmark of a casualty loss. Thus, loss of property due to slow, progressive deterioration is not deductible as a casualty loss. For example, the steady weakening or deterioration of a rental building due to normal wind and weather conditions is not a deductible casualty loss.
From: https://www.buildium.com
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