Intuit Academy Tax Practice Exam

A loss from a sewer backup is classified under casualty losses, which are generally not deductible under the Tax Cuts and Jobs Act (TCJA) for personal property unless they occur in a federally declared disaster area. For taxpayers itemizing deductions on Schedule A under the TCJA, personal casualty losses are significantly limited.

While it may seem that losses should be deductible as they contribute to a taxpayer’s financial burdens, specific guidelines under TCJA dictate that most personal casualty and theft losses are not deductible unless they meet the aforementioned conditions. Therefore, the correct treatment for a $2,500 loss from a sewer backup, based on current tax law, is that it would not be deductible simply as a personal loss.

Thus, the assertion that this loss is deductible does not align with the current regulations governing casualty losses. The correct understanding is that personal losses need specific classification and conditions to qualify for deduction, which in the context of TCJA, many do not qualify.