I love the Big Island of Hawaii and am truly saddened to see the devastation wrought by the recent eruption of the Kilauea volcano. The very same volcanic force of nature that created one of the most beautiful paradise Islands on Earth is currently wreaking havoc on the Southeast Puna district of the island. Big Island residents have lived with an active volcano for years now and will probably continue to do so for years to come. I personally have many friends who live on the Island and am happy to report that they are all safe. This event brought to my attention to the changes in 2018 Tax Law.
The eruption of the Kilauea volcano began on May 3rd 2018 and since then, flowing lava has destroyed more than two dozen homes and buildings. These losses will all hopefully be remunerated by insurance loss claims in short order. But until President Trump declared the Big Island a “Federal Disaster Area,” on Friday May 11th, these homeowners would not have been able to qualify for a “disaster loss” as a tax deduction on their 2018 tax returns! The eruption of Kilauea now joins other disasters such as the 2017 hurricane Harvey and the California Wildfires as a Federal disaster area and because of this, residents affected by the eruption will be able to claim certain personal casualty losses as a deduction on their 2018 tax returns.
The Tax Cuts and Jobs act of 2017 (TCJA) made major changes to what taxpayers can claim as itemized deductions, especially where it comes to personal casualty and theft losses. These deductions that are made were for claims NOT covered by insurance or otherwise. For tax years 2018-2025, the personal casualty and theft loss is only available if the disaster is declared by the president under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Under this provision, a taxpayer will be able to claim a personal casualty loss as an itemized deduction on their taxes provided the loss is over $100 and meets the 10% of Adjusted Gross Income Limitations (AGI).
While the disaster on the Big Island may be thousands of miles away for most of us reading this post, it should serve as a wake-up call to all of us. Now that the deduction restrictions under the new tax law (TCJA) have dramatically increased, perhaps it is time for all of us to review our homeowner, earthquake, flood, fire and auto coverage to make sure that we are properly insured. Remember, it is always better to be safe than sorry.
Disclosures:
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