We were in the middle of our annual Independence Day Block Party yesterday when our next door neighbor came out of her house screaming.
After convincing ourselves that the place wasn't on fire and no one was in any immediate danger, we figured out that the electricity finally came on.
It was way too late to save the hundreds of dollars of spoiled food in our refrigerators, but what a way to turn around what until then had been kind of a quiet affair. We were finally able to forget the heat and humidity and celebrate Independence Day, albeit a couple days early.
And of course, as the neighborhood tax authority, the question inevitably arose: So, can I write off the cost of the food we need to throw away? We had to stay at a hotel because I need air conditioning due to asthma. Can I write that off? We were lucky enough to find a generator at the home center. Is it deductible?
The quick answer for you is, "No, you can't write off any of this stuff."
Yes, it's been a horrible inconvenience. Yes, it's going to cost some money to get the refrigerator stocked again. Yes, yes, yes, it's been a rough few days, and thousands of our neighbors are still suffering without power.
But we also know that the IRS can be a cruel, heartless beast. And here is a perfect example of that.
Here's the rule: Unless you suffered major damage resulting from the storm, you can't write off anything.
First of all, your food is considered a personal expense that is never deductible. There are also no deductions for inconvenience or the cost of alleviating the same.
We're talking about Casualty Losses, and the rules are very clear. For individuals, you may only deduct direct storm-related expenses to the extent they exceed 10 percent of your Adjusted Gross Income plus $100 per event.
That extra $100 just rubs a little salt into the wound, doesn't it?
The IRS defines a Casualty Loss as damage, destruction, or loss of property resulting from an identifiable event. That event must be sudden (not gradual or progressive), unexpected, and unusual—not a day-to-day occurrence.
While certainly last Friday's storm meets the above criteria, the limits on when things become deductible are so high that the food in your refrigerator won't even approach the floor.
If you did suffer a big loss, you also need to offset your expenses against any insurance reimbursement you receive. No double-dipping allowed.
Like anything else, there are lots of other rules and a completely different set of rules for businesses.
For most of us, then, assume that this is another one of those life experiences that comes without a tax benefit.
If you did suffer a significant loss, make sure you consult a licensed and enrolled tax professional for additional details. Remember that only Enrolled Agents, Attorneys, and CPAs are licensed to practice before the IRS.