The Tax Deduction for Basement Flood Damage

When your basement is damaged by flooding, the Internal Revenue Service (IRS) may give you a break in the form of a tax deduction. This can help you recover any losses that you your insurance company did not reimburse you for. Before you take the deduction, make sure that you qualify according to the rules set forth by the IRS.

Uninsured Losses

Not everyone who suffers damage from a basement flood is eligible to take a tax deduction. First, you must show that the damage was not reimbursed by your insurance company. For example, if you have flood insurance and it pays for the entire amount of the damage, you cannot also claim that damage on your tax return as a deduction. You only get to benefit from the damage one time.

Partial Losses

Even if you do have insurance on your home and it pays for some of the damage, you may be able to get a partial tax deduction. If the insurance company only pays for a portion of the damage, you have the option of deducting the rest of the damage on your tax return. For example, if your homeowners insurance only pays $50,000 of a $100,000 restoration bill, you get to take a deduction on the remaining $50,000.

Floods vs. Accidents

To be eligible for this tax deduction, the damage must be caused by an actual flood. This means that water must have come in from the outside of your house. If a water pipe breaks in your house or if the sewer backs up, you would not qualify for a deduction. For example, if your city is flooded because of excessive rain, then you may be eligible for taking a tax deduction on the damage to your basement.

Calculating the Deduction

When you file your taxes, you cannot simply deduct the amount of the damage from your taxable income. To calculate the deductible amount, take the amount of the damage and subtract $100. Then subtract 10 percent of your annual adjusted gross income; this is the amount of your deduction. If the amount is a negative amount, you cannot take a deduction.