Can I deduct Federal Declared Casualty loss on Second Home with No insurance? Hurricane damage tax questions!

The IRS position is technically correct, but there are some nuances worth understanding. While casualty losses in federally declared disaster areas can be deductible, the Tax Cuts and Jobs Act changed the rules significantly, and there's a specific requirement about insurance. The IRS generally disallows casualty loss deductions for properties that should reasonably have been insured. Since vacation homes in hurricane-prone areas like Florida would typically be expected to have insurance coverage, the IRS has grounds to deny the deduction. This rule exists to prevent taxpayers from essentially self-insuring while passing the risk to the government through tax deductions. That said, your options aren't completely exhausted. The calculation for casualty losses uses the lesser of your adjusted basis or the decrease in fair market value - not just the market value decrease. You might want to look at whether any portion might still qualify or if there are state-level tax benefits available.

After going through something similar with a property damaged in Hurricane Ian (not Michael btw, that was 2018), I found this amazing AI tool that helped analyze my tax situation and provided clarity on casualty loss deductions. Check out https://taxr.ai - it actually reviews your specific tax documents, IRS correspondence, and determines whether you might have grounds for appeal based on your exact situation. For me, it found that while my initial deduction was denied, I had evidence of attempting to get insurance (rejection letters) that strengthened my case. The tool analyzed my documentation and helped me draft a proper response to the IRS with the right tax code citations. Super helpful when dealing with complicated disaster tax situations like this.

I was really skeptical about using an AI tax tool like taxr.ai, but after getting nowhere with three different tax preparers on my Hurricane Ian casualty loss situation, I decided to give it a shot. I uploaded my denial letter from the IRS and the documentation showing I had tried to get insurance (but was declined due to the property's location). The tool actually identified a specific IRS memo from 2019 that addressed situations where insurance was "not reasonably available" - something none of my tax pros had mentioned! With this information, I was able to file an appeal with the proper documentation and references, and the IRS actually reversed their decision on my casualty loss deduction. Not saying it will work for everyone, but it definitely helped in my situation where the casualty loss deduction was denied specifically because of the insurance issue.

Since you're dealing with the IRS denying your deduction, you might want to try speaking directly with an IRS agent about this. I was in a similar situation (though with a different type of deduction) and spent WEEKS trying to get through to a human at the IRS. Eventually I found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes instead of the usual hours of hold times. You can see how it works at https://youtu.be/_kiP6q8DX5c I was able to explain my situation directly to the agent who helped me understand exactly why my deduction was denied and what documentation I would need to provide to potentially reverse the decision. Sometimes you just need to speak to the right person to get clear guidance.

I've got to eat my words here. After being super skeptical about Claimyr in my reply above, I was desperate enough to try it last week for my own tax issue. I actually did get connected to an IRS agent in about 15 minutes, which was shocking after my previous attempts that went nowhere. The agent I spoke with explained that for casualty losses on second homes, they are technically deductible in federally declared disaster areas, BUT there's a "reasonable and prudent person" standard applied to insurance. Basically, if a reasonable person would have insured the property given its location, the IRS can deny the deduction if you didn't have insurance. However - and this might help the original poster - the agent also mentioned that if you can document attempts to obtain insurance that were denied or quoted at prohibitively expensive rates, that documentation can be submitted with an appeal to potentially reverse the decision. Worth a shot if that applies to your situation.

I went through something similar with Hurricane Ian damage to my Naples vacation property. Make sure you're using Form 4684 correctly for the casualty loss calculation. One thing I learned is that you need to be calculating based on the lesser of: 1) The adjusted basis in the property before the casualty 2) The decrease in FMV due to the casualty Since you mentioned your FMV is higher than your cost basis, you would use your adjusted basis for the calculation, not the FMV drop. Also, don't forget the $100 floor per casualty and the 10% of AGI limitation that applies.

Has anyone successfully appealed an IRS denial for casualty loss due to no insurance? My CPA said we should just give up but I'm wondering if it's worth fighting.

Carmen, I'm really sorry to hear about your situation with the Fort Myers property. One thing that might help is checking if you have any documentation showing you attempted to get insurance or were quoted unreasonably high premiums. Based on what others have shared here, the IRS sometimes accepts appeals when you can prove insurance was genuinely unavailable or prohibitively expensive. Also, since this was Hurricane Michael, you might want to double-check the timeline - that hurricane hit in 2018, so depending on when you filed your taxes, there might be amended return options still available. The casualty loss rules have changed several times in recent years, and you might have more options than your initial denial suggested. Have you considered reaching out to a tax attorney who specializes in disaster-related tax issues? Sometimes the appeal process requires very specific documentation and legal arguments that general tax preparers aren't familiar with. Given the significant financial impact you mentioned, it might be worth the investment to get professional help with the appeal.