On December 13, 2017, the Internal Revenue Service issued guidance providing safe harbor methods that individuals may use in determining the amount of their casualty and theft losses for their homes and personal belongings, including losses from recent hurricanes. Below please find brief summaries of the safe harbor provisions that the IRS issued in this guidance.

Estimated Repair Cost Safe Harbor Method

Under the Estimated Repair Cost Safe Harbor Method, to determine the decrease in the fair market value of the individual’s personal-use residential real property, an individual may use the lesser of two repair estimates prepared by two separate and independent contractors, licensed or registered in accordance with State or local regulations. The two repair estimates must set forth the itemized costs to restore the individual’s personal-use residential real property to the condition existing immediately prior to the casualty. The Estimated Repair Cost Safe Harbor Method is available for casualty losses of $20,000 or less.

De Minimis Safe Harbor Method

Under the De Minimis Safe Harbor Method, to determine the decrease in the fair market value of the individual’s personal-use residential real property, an individual may estimate the cost of repairs required to restore the individual’s personal-use residential real property to the condition existing immediately prior to the casualty. An individual’s estimate must be a good-faith estimate, and the individual must maintain records detailing the methodology used for estimating the loss. The De Minimis Safe Harbor Method is available for casualty losses of $5,000 or less.

Insurance Safe Harbor Method

Under the Insurance Safe Harbor Method, to determine the decrease in the fair market value of the individual’s personal-use residential real property, an individual may use the estimated loss determined in reports prepared by the individual’s homeowners’ or flood insurance company setting forth the estimated loss the individual sustained as a result of the damage to or destruction of the individual’s personal-use residential real property.

Contractor Safe Harbor Method

Under the Contractor Safe Harbor Method, to determine the decrease in the fair market value of the individual’s personal-use residential real property, an individual may use the contract price for the repairs specified in a contract prepared by an independent contractor, licensed or registered in accordance with State or local regulations, setting forth the itemized costs to restore the individual’s personal-use residential real property to the condition existing immediately prior to the Federally declared disaster. To use the Contractor Safe Harbor Method, the contract must be a binding contract signed by the individual and the contractor.

Disaster Loan Appraisal Safe Harbor Method

Under the Disaster Loan Appraisal Safe Harbor Method, to determine the decrease in fair market value of the individual’s personal-use residential real property, an individual may use an appraisal prepared for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government setting forth the estimated loss the individual sustained as a result of the damage to or destruction of the individual’s personal-use residential real property from a Federally declared disaster.

Tax changes and updates are occurring frequently at this time, and our firm wants to make sure you have the information you need to prepare for 2017 tax filings. Should you have any questions, please do not hesitate to contact us at 239.433.5554.

Please see our other blog post on Safe Harbor Methods – Personal Belongings

 

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