Flood damage: Deducting costs from your taxes

The recent severe weather disaster in July 2021 caused extensive damage in parts of Germany. Estimates put the resulting damage in the billions. Generally, those affected by flood damage cannot simply pay the high repair costs out of their own pockets. Fortunately, there are various ways to cover these costs. Even without insurance, for example, it is possible to claim the costs as a tax deduction. In light of the recent flood damage, we have summarized all relevant information for you in this article. Of course, the following information applies to any type of flood damage.

Do I have the right insurance?

Insurance is there to provide us with financial protection against certain events. In addition to traditional insurance policies that almost everyone has or is even required to have (e.g., health insurance), there are various policies that cover specific risks or situations of a more unusual nature. It is very likely that you have home contents or building insurance. However, significantly fewer people have so-called natural disaster insurance, which covers events such as floods and earthquakes. If unexpected damage occurs, those affected first ask themselves to what extent their existing insurance coverage applies. Even after the 2021 flood disaster, many people unfortunately discovered that they had no insurance coverage for the damage. In the case of uninsured flood damage, alternatives must therefore be found to cover the sometimes exorbitant costs.

Financial Assistance from the Government

In the case of particularly severe weather disasters, such as the one we recently witnessed, the government often steps in and supports those affected with a government aid package. This government aid provides some support, especially in the immediate aftermath of the disaster. However, government emergency aid is often insufficient to cover the total costs of the following months or years.  You may be able to receive financial assistance through other channels for repairs to your home and apartment, as well as for the replacement of destroyed property: Provided certain conditions are met, costs related to flood damage are tax-deductible.

Repair costs for landlords = business expenses

If the property affected by the flood is used for rental purposes, the costs of repairs can be deducted relatively easily. Expenses for storm damage can be deducted by the landlord as income-related expenses. It is important to note that only costs that have not previously been compensated through other means may be claimed for tax purposes. Therefore, if the costs are covered by insurance, a tax deduction is not permitted. For most landlords, claiming the expenses as income-related expenses will be the best way to recoup the costs. Alternatively, or in some cases additionally, it is also possible to claim special depreciation. Whether this is advisable should be discussed on a case-by-case basis with a qualified tax advisor.

Flood Damage as an Extraordinary Burden

If you use the damaged property yourself or are a tenant of a house or apartment, the costs cannot be deducted as income-related expenses. Nevertheless, the expenses incurred can be claimed for tax purposes. In these cases, the costs of repairing the damage are reported as an extraordinary burden.

Costs for construction work, repairs, or maintenance measures can be claimed as extraordinary expenses, provided they pertain to essential parts of the house or apartment. Examples include damaged windows or doors. Repairing a patio, on the other hand, would not be considered essential and is therefore not deductible. Damage to a car is also not recognized. Ideally, however, the vehicle’s comprehensive insurance would cover this. Costs for the purchase of furniture, household goods, or clothing that were damaged by the storm and have thereby become “useless” are also deductible as extraordinary expenses.

The principle that only costs not yet covered by other sources are deductible also applies to extraordinary expenses. Additionally, it must be noted that there is a “reasonable out-of-pocket expense” threshold for claiming these as extraordinary expenses. This amount is determined on a case-by-case basis and must be exceeded for the costs to ultimately reduce the tax burden. Since flooding typically results in high costs, it can be assumed that this threshold is almost always exceeded. In case of doubt, a tax advisor can provide clarity on this matter.

These factors can prevent tax deductibility

With regard to the deductibility of storm damage, it is important that certain conditions be met. First, there must be no contributory negligence on your part. In case of doubt, this must be verified by an expert. An example would be a basement window left open carelessly. As mentioned earlier, there must also be no existing insurance claims. Furthermore, the damage must not be covered by “standard insurance.” This is where things can get complicated. For example, if you have not taken out “standard” insurance, the tax office may refuse to recognize the costs. In the current situation, however, this rule has been relaxed by the affected federal states. A corresponding decree allows affected individuals to deduct the costs as an extraordinary burden even without insurance coverage. In this case, the tax office does not conduct a detailed review for amounts up to 70,000 euros. If this amount is exceeded, the costs can be spread over the following years.

Tax Consulting in Düsseldorf and Oberhausen

We hope this article was helpful and that you have gained an initial overview of the tax situation. Since the world of taxes is very complex and there are often special regulations in individual cases, it is worth consulting a tax advisor. Especially when high costs are involved, you should seek professional help. At Trimborn . Partner, you can rely on our team of tax experts. We’ll take care of your concerns and are happy to advise you. Contact us to schedule a consultation.