Reps. Courtney, Larson Introduce Bill to Restore ‘Casualty Loss Deduction’, Help Make All Victims of Disaster and Theft Whole
WASHINGTON, D.C. – Today, Congressman Joe Courtney (CT-02) and Congressman John Larson (CT-01) introduced the Casualty Loss Restoration Act, legislation that would restore the personal casualty loss tax deduction to all victims of theft and disaster—not just those who have been fortunate enough to have received a Presidential disaster declaration.
Because of the GOP tax law, which went into effect at the end of 2017, the criteria for claiming a casualty loss due to theft or disaster was dramatically limited. Americans who were once eligible to seek financial relief through the casualty loss provision following events such as earthquakes, floods, fires, storms, and theft are now ineligible to take the deduction unless the event received a Presidentially-issued disaster declaration through the Stafford Act. Congressman Courtney’s Casualty Loss Restoration Act would restore the important tax deduction to its full force, allowing taxpayers to take the deduction without the need for a Presidential disaster declaration.
“In 2017, if a tree fell on your home, you would have been able to claim a ‘casualty loss’ from the IRS to recoup some of the lost value of the roof,” said Congressman Courtney. “Unfortunately, with the Tax Cuts and Jobs Act on the books, that’s no longer the case—you would have receive a Presidential disaster declaration through FEMA in order to receive any federal tax relief for this event. Homeowners in eastern Connecticut today are just as susceptible to bad luck as we were back in 2017—we never know when a flood, fire, or falling tree might cause serious damage to our homes, but when those events do occur, taxpayers should be able to rely on the federal casualty loss deduction to help offset the high cost of repairs.
“This bill is particularly important for homeowners in eastern Connecticut who have been impacted by the crumbling foundations crisis, many of whom are my own neighbors. Back in December of 2017–right before the Tax Cuts and Jobs Act became law–Congressman John Larson and I worked closely with the IRS and Treasury Department to allow homeowners with crumbling foundations to take a casualty loss deduction to repair their home’s crumbling foundation. This guidance from the IRS was a boon for homeowners in Connecticut and Massachusetts with crumbling foundations, allowing them to be made whole again after paying to repair their home’s foundation. Because of the new tax law, homeowners with crumbling foundations can only receive this tax relief through amending their 2017 tax return, as this guidance from this IRS was grandfathered in before the new law could take effect. Taxpayers only have three years to amend their 2017 tax return, so the deadline for homeowners to make these repairs and take this tax relief is quickly approaching. My bill will restore the casualty loss deduction to its original scope, and I will continue to work with my colleagues to advance this issue before this tax relief expires in April 2021.”
“I am proud to partner with Congressman Courtney in working to fully restore the casualty loss deduction,” said Congressman Larson. “The Tax Cuts and Jobs Act unfairly limited this deduction to federally-designated disasters. Our bill will ensure that all taxpayers who suffer a casualty loss will once again become eligible for relief. This is especially important to Connecticut homeowners with crumbling foundations who are currently able to take the casualty loss deduction for repairs, but due to the 2017 Tax Law, will no longer be able to take this deduction in the coming years without this bill. I thank Congressman Courtney for his steadfast work on this bill and look forward to its advancement.”
Background on the Casualty Loss Deduction and Crumbling Foundations
In November of 2017, the IRS issued Rev. Proc. 2017-60 to enact a “safe harbor” for the treatment of crumbling foundation-related repair costs as a “casualty loss” deduction from a taxpayer's taxable income under Section 165 of the Internal Revenue Code.
The Republican tax-overhaul signed into law in December 2017, temporarily limits the applicability of Section 165. Under the law, beginning in tax year 2018 only taxpayers who suffer damage related to a presidentially-declared Stafford Act disaster may deduct their property-casualty losses. This provision expires in 2025.
In a December 21, 2017 letter to Courtney and Larson, the IRS confirmed that homeowners who had already completed repairs to their home before the end of 2017 would be able to claim the costs on their federal tax returns for 2017, or any open prior year.'
In October of 2018, Courtney and Larson announced that the IRS would allow homeowners with crumbling foundations to carry forward or carry back a net operating loss, should their casualty loss to fix their foundation exceed their annual tax liability. This clarification means that even if the net loss suffered by a homeowner exceeds their annual federal tax liability, they can carry forward that loss for up to 20 years.
In April of 2019, Courtney and Larson received tax clarification from the IRS that homeowners impacted by crumbling foundations could write off additional crumbling foundations-related repairs as part of this important tax deduction.
Taxpayers have three years from the date they filed their original tax return to file Form 1040X to amend their return (and claim this deduction). The updated revenue procedure extends the “safe harbor” through the period that 2017 returns can be amended, expected to be the filing season in spring of 2021.
Homeowners should consult with a qualified tax preparer to see if they qualify for this deduction.