The IRS has provided two general purpose safe harbors for claiming a casualty loss related to a personal residence and its contents (in Revenue Procedure 2018-8), as well as one tailored for the hurricanes that took place in 2017(Revenue Procedure 2018-9). In a Revenue Procedure, IRS has provided a safe harbor method under which individuals may use one or more cost indexes to determine the amount of loss to their homes as a result of Hurricane and Tropical Storm Harvey, Hurricane Irma and Hurricane Maria (2017 Hurricanes).
For instance, in Revenue Procedure 2018-08, one of the safe harbor methods allows a homeowner to determine the amount of loss, up to $20,000, by obtaining a contractor estimate of repair costs. Another safe harbor method, contained in Revenue Procedure 2018-09 (the “Cost Indexes Safe Harbor Method”), allows taxpayers to use one or more cost indexes to determine amount of loss due to Hurricane Harvey, Hurricane Irma or Hurricane Maria during 2017. The indexes contain tables with per-square-foot costs for Texas, Louisiana, Florida, Georgia, South Carolina, Puerto Rico and the U.S. Virgin Islands.
The general-purpose ruling provided for safe harbor methods for claiming an amount of casualty loss using a simpler method than getting “before event” and “after event” appraisals. One set of the general-purpose relief provisions apply to any losses (Rev. Proc. 2018-08), while the second set (Rev. Proc. 2018-09) only apply if the loss arises from a federally declared disaster.
The IRS states in the revenue procedure that it will not challenge an individual’s determination of the decrease in fair market value of personal-use residential real property if the individual qualifies for and uses the safe harbor method provided in the revenue procedure.
The safe harbor methods detailed in Rev. Proc. 2018-08 are effective on Dec. 13; the safe harbor method in Rev. Proc. 2018-09 is effective for losses that are attributable to the 2017 hurricanes and that arose in the 2017 disaster area after August 22, 2017.