How do casualty losses affect my home's cost basis for tax purposes?

Wait, really? That makes so much more sense! So just to be super clear - if I got $34,000 from insurance and spent exactly $34,000 fixing the damage, my cost basis stays at $380,000? What about if the repairs cost MORE than what insurance paid? Like if I got $34,000 but had to spend $37,000 out of pocket to fix everything back to normal?

Yes, if you spent exactly $34,000 fixing the damage with the $34,000 insurance payment, your basis remains unchanged at $380,000. You've simply restored the property to its original condition. If repairs cost more than the insurance payment, like in your example where you spent $37,000 but only received $34,000, the additional $3,000 you paid out of pocket would actually be added to your basis. So your new basis would be $383,000 ($380,000 original basis + $3,000 additional repair costs not covered by insurance).

How does this work exactly? Like do you just upload your documents and they figure it out? I've got a situation where my roof was damaged by hail, but while fixing it we also added solar panels. So some was restoration and some was improvement and I'm totally confused.

Idk sounds like another service trying to charge for info you can get free from the IRS. How much does it cost? And do they actually file your taxes or just tell you what to do?

You upload your documents to the system and it analyzes them to identify the critical details. Then it provides a detailed explanation of how to handle your specific situation. For your situation with the roof and solar panels, it would help separate what portion was restoration (no basis change) versus what was improvement (increase to basis). The service doesn't file your taxes - it specifically focuses on document analysis and explanation. It's more about understanding the technical details of your situation rather than replacing your tax preparer. Many people use it alongside their regular tax software or accountant when they have complicated documentation issues.

How does this even work? I don't understand how a third party service can magically get you through to the IRS faster than everyone else. Sounds totally made up.

Yeah right. The IRS is impossible to reach. I've tried calling multiple times and always get the "we're experiencing high call volume" message and then they hang up. No way some service can magically fix the broken IRS phone system.

It's not magic - they use technology that monitors the IRS phone systems and calls at precisely the right moment to secure a place in line. Then when an agent is available, they call you and connect you directly. They don't change how the IRS works, they just handle the waiting game for you. You still talk to the same IRS agents, but instead of being on hold for hours, you go about your day until they call you when an agent is ready. It's basically like having someone else wait in line for you at the DMV.

Yes, your basis would increase by the $7k you paid out of pocket. Here's how it works: 1. Insurance payment used for repairs: No change to basis 2. Out-of-pocket costs to restore to original condition: Increases basis 3. Improvements beyond original condition: Increases basis So in your case, your basis increases by $7k since that's additional money you invested in the property beyond what insurance covered.

Yes, technically you would need to reduce your basis by that $2k. The IRS would view that as money you "pocketed" from the insurance that wasn't used to restore the property. It's considered a partial reimbursement of your initial investment in the property.

That's a really good question about the leftover insurance money! I had a similar situation where I got estimates that were higher than what the actual repairs ended up costing. From what I understand, you're right that technically you should reduce your basis by the unused portion. But here's something to consider - if you used that extra $2k for related expenses like temporary housing, storage, or debris removal that the insurance also covered, those might count as part of the casualty restoration. You might want to keep detailed records of all casualty-related expenses to see if any of that "leftover" money actually went toward getting your property back to normal. @222045d97eb3 is this correct about related expenses potentially counting toward restoration?

Great question about timing! The good news is that the IRS doesn't require you to complete repairs within the same tax year you receive the insurance payment. What matters is your intent and actual use of the funds for restoration, not the specific timing. For documentation, you're already on the right track with contractor receipts and insurance settlement papers. I'd also recommend keeping: - Photos of damage before and after repairs - Any correspondence with your insurance company - A simple log showing how insurance funds were allocated to specific repairs - Receipts for any materials you purchased directly The key is being able to demonstrate that the insurance money went toward restoring the property to its pre-casualty condition rather than making improvements. Since you spent exactly what insurance paid for restoration work, your basis should indeed remain unchanged.

Your calculation looks correct! You would increase your basis by $11,000 total - the $3,000 you paid out of pocket for restoration plus the $8,000 for upgrades beyond the original condition. The IRS does allow you to separate restoration from improvements even when they're done as part of the same project. The key is having good documentation that clearly shows what portion was necessary to restore the property to its pre-damage condition versus what was elective upgrades. I'd recommend keeping detailed invoices that itemize the restoration work separately from the upgrade work. If your contractor didn't break it down that way, you might want to create your own documentation showing how you allocated the costs between restoration ($28,000) and improvements ($8,000). Photos of the original flooring versus the upgraded materials could also help support your position if questioned. The fact that you can clearly identify the restoration amount ($28,000) based on the actual damage should help demonstrate that the additional costs were genuine improvements rather than inflated restoration expenses.

You handle each casualty event separately for basis calculations, which is actually good news for you! Since both of your insurance payouts were used entirely for restoration to original condition, neither event should affect your basis at all. The hail damage restoration maintains your existing basis, and the fence replacement does the same. For casualty loss deduction purposes, you're right to think about thresholds - each event gets evaluated individually against the $100 per event floor and then the combined total gets tested against the 10% of AGI threshold. But since your insurance fully covered both situations, you likely won't have any deductible casualty losses anyway. Regarding the home office depreciation question - that's a really smart consideration! The basis adjustments (or lack thereof in your case) would flow through to affect the business portion of your home's depreciable basis. Since your basis isn't changing from these casualty events, your home office depreciation calculations should continue unchanged. However, if you had basis increases from out-of-pocket expenses, that would proportionally increase the depreciable basis for your business use percentage. You might want to document the business use percentage of any affected areas (like if the roof covers your office space) just to keep clean records for depreciation purposes.

This is exactly the kind of practical advice I wish I'd had when I first dealt with casualty losses! As someone who's been through multiple insurance claims, I can't stress enough how important that contemporaneous documentation is. I made the mistake of trying to reconstruct everything months later for my first claim, and it was a nightmare trying to remember which expenses were for restoration versus which ones were upgrades I decided to make while the contractors were already there. One thing I'd add to your excellent advice - take photos not just of the damage and repairs, but also of your receipts and insurance documents. I learned this the hard way when some of my paper receipts got water damaged in another incident! Having digital backups saved me during tax preparation. Also, for anyone reading this who uses contractors, make sure they understand you need detailed invoices that separate restoration work from any upgrades. Most contractors are happy to break it down that way if you ask upfront, but it's much harder to get them to redo invoices after the work is completed.