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Cost Indexes Safe Harbor Method to Calculate Hurricane-Related Losses to Personal-Use Residential Real Property (Updated)

Revenue Procedure 2018-09, 2018-2 I.R.B 290, available at IRS.gov/irb/2018-02_IRB, provides a safe harbor method you may use to calculate the amount of your casualty losses for your personal-use residential real property damaged or destroyed in Texas, Louisiana, Florida, Georgia, South Carolina, the Commonwealth of Puerto Rico, or the territory of the U.S. Virgin Islands as a result of Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria.

To figure the amount of your casualty losses, you generally must determine the decrease in the fair market value ("FMV") of the damaged property using a competent appraisal or the cost of repairs you actually make. But Rev. Proc. 2018-09 provides a safe harbor method that allows you to determine the decrease in the FMV of your personal-use residential real property in other ways. If you qualify for and use the cost indexes safe harbor method described in Rev. Proc. 2018-09, the IRS will not challenge your determination. The use of the cost indexes safe harbor method described in Rev. Proc. 2018-09 is not mandatory. 

Under the cost indexes safe harbor method, you may use one or more cost indexes to figure the casualty loss to your personal-use residential real property. The cost indexes safe harbor method may be used if you suffered any of the following:

  • A total loss of a personal residence
  • A near total loss of a personal residence
  • Interior flooding over one foot in a personal residence
  • Structural damage from wind, rain, or debris to a personal residence
  • Roof damage from wind, rain, or debris to a personal residence
  • Damage to a detached structure
  • Damage to decking

Rev. Proc. 2018-09 provides tables and calculation methods to determine the decrease in the FMV for each category based on the cost per square foot or percentage of damage, the size of the property, and the geographic location.
 
Reporting Requirements on Form 4684. Attach a statement to Form 4684 stating that you used Rev. Proc. 2018-09 to determine the amount of your casualty loss. Include the specific table number used. When completing Form 4684, do not enter an amount on line 5 or line 6 for each property. Instead, enter the decrease in the FMV determined under the safe harbor method on line 7.

The cost indexes safe harbor method is subject is subject to additional rules and exceptions. For additional information, see Rev. Proc. 2018-09. You may qualify to use other safe harbor methods as well. See Rev. Proc. 2018-08 for more information.