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

Rev. Proc. 2018-09 provides a safe harbor method you may use to calculate casualty losses for your personal-use residential real property damaged or destroyed in Texas, Louisiana, Florida, Georgia, and South Carolina, the Commonwealth of Puerto Rico, or the territory of the U.S. Virgin Islands by Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria.

To figure your casualty losses, you generally must determine the decrease in the fair market value ("FMV") of lost or damaged property using a competent appraisal or the cost of repairs you actually make.  But Rev. Proc. 2018-09 provides a safe harbor 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 elect to use the cost indexes safe harbor method described in Rev. Proc. 2018-09, the IRS will not challenge your determination.  

Under the cost indexes safe harbor method you may use one or more cost indexes to figure any casualty loss from your personal-use residential real property.  The cost indexes 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, real property square footage or percentage of damage, the type of damage, and the geographic regions. 

For additional information, see Rev. Proc. 2018-09.  You may qualify to use other safe harbor methods instead.  See Rev. Proc. 2018-08 for more information.