Eric P. Feichthaler

Mr. Feichthaler:

I read a story in the Breeze last week about “casualty loss” rules, and how it can provide an income tax benefit. Is this related to the $1.1 billion FEMA gave to Lee County? More importantly, is this real?

— Gladys M.

Dear Gladys:

With Hurricane Ian now a year behind us, the fallout continues to impact thousands of our friends and neighbors. Problems with roofing contractors, unresponsive insurance companies and FEMA reconstruction rules have made life difficult for many. The Casualty Loss rules are the one bright spot in the current landscape.

The tax benefit available to homeowners in Lee County is not related to the FEMA payments to be received by Lee County. Rather, it is a long-established code section available to taxpayers. There are two ways to value a loss due to a hurricane: First, there is the possibility of deducting out-of-pocket losses from adjusted gross income. However, there is an alternate way to value losses, based on change in value of the home after the storm.

Based on my clients’ experience here is a typical example: A home worth $600,000 prior to the hurricane will appraise immediately after around 12% lower, or $72,000. The IRS then subtracts out payments received from insurance companies. In our example, we will value this at $25,000, for a net loss of $47,000. Then, the IRS requires that 10% of adjusted gross income is excluded from deduction. For a couple making $90,000, $9,000 would be deducted, leading to a total deductible loss of $47,000 – $9,000, or $38,000.

At a tax rate of 22%, the above example would yield a tax refund of $8,360.00. The more expensive the home, the greater the potential benefit. And, the lower the amount of insurance proceeds received, the greater the potential refund. Those that have made no insurance claims for losses, interestingly, have a greater ability to deduct the loss in value.

Most of my clients have already filed their 2022 tax returns, however these refunds are still available through amending the return. The benefits far outweigh the costs in doing so for nearly everyone I have evaluated.

This is the one situation where the federal government is providing relief to the everyday homeowner, whether working or retired. For those that have not sought this significant refund, a tax attorney or your CPA is the best resource to start. Wishing you the greatest of refunds, and, to answer your question, the refunds that are coming back to my clients are very real.

Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Museum of History, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.