Casualty Loss

[ILLMAS]

I did a bit of research before hand, TP had flooding in her basement and her insurance covered all the damages, TP paid around $2,500 for the deductible, she also had extra work done which she is aware is not part of casualty loss and she won't be able to deduct it. Second issue, the insurance company found a problem with a pipe that vents on the roof (sewer pipe), the insurance company paid to have the walls opened/closed but for the pipe replacement, here is where I am stuck, is the pipe considered a casualty loss because the insurance co. paid for the wall opening/closing or is this more like an improvement since the TP had to pay out of her pocket. I couldn't find an answer with the IRS, but if someone has encountered this issue I would appreicate it, if you can guide me to get the proper support before I notify the TP if it's deductible.

Thanks

[jainen]

>>a problem with a pipe <<

What sort of problem? For tax purposes, the definition of casualty is an identifiable event that is sudden, unexpected, or unusual. In my opinion, if the pipe got corroded or blocked or jiggled loose over time, that would not be a casualty loss. If the water in the basement caused internal supports to collapse pulling down the pipe, then okay.

[kcjenkins]

Jainen has identified the questions you need to consider. It's not an either/or answer, it's a 'facts and circumstances' thing. The fact that the insurance company paid for opening and closing the wall suggests that they determined that the flooding caused the problem. If given no other info, I'd assume it was part of the 'casualty', as insurance adjusters are masters at finding ways to EXCLUDE things from being part of the coverage, and seldom include anything that there is any question about. In fact I've never personally known an IRS auditor to question what insurance covered in this sort of case.

[ILLMAS]

Thanks, now that I have interviewed the client and know all the facts, it sure sounds like it was a casualty loss, here is a little background, underground sewer pipes collasped causing flooding, insurance company paid to have it replaced. Client never had any problems with the pipes running through the walls until the basement (sewer pipes) were replaced, plumber didn't want to take responsiblitiy nor the insurance company, but at the end, insurance co. paid to open/close the walls but would not pay for the pipe replacement, so TP was stuck with the bill. Her deductible was $2500 for the basement repair and $1000 for 1st fl/attic + 3150 to have the pipes replaced total casualty loss of 6650.

MAS

[kcjenkins]

Then I'd go for it.