Should you file an insurance claim before reporting a casualty loss to the IRS?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
Yes, in most cases, you should file an insurance claim before reporting a casualty loss to the IRS. This is a critical requirement under the Internal Revenue Code and Treasury Regulations for both personal and business casualty losses.
1. Legal Requirements
a) Requirement to File an Insurance Claim
- IRC §165(a) and (c): A casualty loss is deductible only to the extent it is not compensated for by insurance or otherwise.
- IRC §165(h)(4)(E): For personal casualty losses, a loss that is covered by insurance is only taken into account if the individual files a timely insurance claim for reimbursement.
- Treas. Reg. §1.165-1(d)(2): If there is a reasonable prospect of recovery from insurance, no portion of the loss is deductible until it can be ascertained with reasonable certainty whether or not the reimbursement will be received.
- Treas. Reg. §1.165-1(e): If you do not file an insurance claim, you cannot deduct the full unrecovered amount as a casualty loss; only the part of the loss that is not covered by your insurance policy is deductible.
b) IRS Guidance and Publications
- IRS Publication 547: States that if your property is covered by insurance, you should file a timely insurance claim for reimbursement of your loss. If you do not file an insurance claim, you can only deduct the part of the loss that is not covered by your insurance policy (such as a deductible). The IRS will not allow a deduction for the portion of the loss that could have been covered by insurance if you fail to file a claim.
- IRS Publication 1600: Reiterates that when figuring your casualty loss, you must reduce the loss by any insurance reimbursement you receive or expect to receive. If you had insurance but did not file a claim, you can only deduct the amount of the loss that the insurance would not have covered (e.g., the deductible).
c) Practical Application
- If you have insurance coverage for the property, you must file a claim to determine the amount of reimbursement, if any, before you can determine the deductible loss for tax purposes.
- If you do not file a claim, the IRS will generally disallow the deduction for the portion of the loss that would have been covered by insurance, even if you did not actually receive reimbursement.
2. Exceptions and Special Rules
- Deductible Portion: If your insurance policy has a deductible or does not cover the full loss, you may deduct the unreimbursed portion, but only after filing a claim and determining the actual reimbursement.
- No Insurance Coverage: If you have no insurance coverage for the property, you may deduct the entire loss (subject to other limitations), as there is no prospect of reimbursement.
- Pending Claims: If you have a pending claim and there is a reasonable prospect of recovery, you cannot deduct the loss until it is clear whether you will receive reimbursement. If you later receive less than expected, you may claim the additional loss in the year it becomes clear you will not be reimbursed.
3. Summary Table
4. Conclusion
You must file an insurance claim before reporting a casualty loss to the IRS if your property is covered by insurance. Only the portion of the loss not covered by insurance (such as a deductible or an amount in excess of policy limits) is deductible. If you do not file a claim, you cannot deduct the portion of the loss that would have been covered by insurance.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
