Are Insurance Deductibles Tax Deductible?
Hello,
I have a rental property that was damaged by the 3 hurricanes that hit central Florida. I filed my first claim with the insurance company immediately after the first storm. I then had to file a second claim after the 3rd storm. My deductible each time is $4k, for a grand total of $8k.
My insurance company is finally settling both claims but I will have to come out of pocket about $3k. My question is since this is a rental property can I deduct the $8K in insurance deductibles I have to pay on my taxes?
Thanks.
Ravi 
Yes you can. Operating expenses
That would be awesome. I will call my accountant today to verfiy. This will help me out big time.
These hurricanes hurt! I've had to carry the mortgage on my triplex that got damaged for a few months now because the insurance company has been delaying everything.
Thanks for the feedback!
Well I just talked to my accountant. He said the deductibles can be tax deductible but it would have reach a certain dollar amount based on some fancy IRS formulas. At first glance it does not look like it will be a deduction for me, but we won't know for sure until tax time and I bring all the repair costs and additional information.
Not great, but not bad either.
rshivdat,
Ask your accountant whether the work required to fix the hurricane damage would be a capital improvement instead of a repair for your rental property..
If so, then you would have to capitalize your out of pocket cost and recover it through depreciation.
I don't know for sure, but I think the formula the accountant is referring to applies to an itemized deduction on your Schedule A. Remind the accountant that you're only asking about your rental property expenses reported on Schedule E.
I'll do that. Thanks for the feedback.
Ravi
Definitely deductible as a casualty - Here is the IRS info
http://www.irs.gov/pub/irs-pdf/p547.pdf
http://www.irs.gov/taxtopics/tc507.html
[ Edited by linlin on Date 11/01/2004 ]
Another reason to carry a higher deductible...
Definitely read Publ 547, but technically you can't just take a deduction for your insurance deductible.
The transaction is treated similar to a sale. Your insurance proceeds minus the lesser of your basis in the property destroyed, or the decrease in it's FMV, is your loss. (So, if it cost you more to repair than your current basis in the property, you could only deduct your basis.)
Unless the property is completely destroyed it will be easier to use the cost of repairs as the decrease in FMV. (If your insurance paid more than it costs to repair, you could actually have a gain).
You would decrease the basis of your property by the amount of loss claimed and increase the basis by the cost of repairs (which would be deducted through depreciation). You could also take the position that the repairs put you in the same position as before and deduct them currently.
Probably best to take it to your accountant on this one.
PS - I agree w/ New Kid. I think your accountant is talking about the limits on a personal casualty loss, not a business/investment loss.
Thanks. I'll keep that in mind. I'll let you all know how it goes.
Ravi