rp-18-09.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

26 CFR 601.105. Examination of returns and claims for refund, credit or
abatement; determination of correct tax liability.
(Also Part I, §§ 165; 1.165-1(c)(4), 1.165-1(d)(2)(iii), 1.165-7(a)(2), 1.165-7(b).)

Rev. Proc. 2018-09

CONTENTS
SECTION 1. PURPOSE
SECTION 2. BACKGROUND
SECTION 3. SCOPE
.01 In general
.02 Definition of personal-use residential real property and personal
residence
.03 Use of Cost Indexes Safe Harbor Method
(1) Total loss
(2) Near total loss
(3) Interior flooding over 1 foot
(4) Structural damage from wind, rain, or debris
(5) Roof covering damage from wind, rain, or debris
(6) Damage to a detached structure
(7) Damage to decking
.04 Taking into account no-cost repairs
.05 Limited use of safe harbor method

SECTION 4. COST INDEXES SAFE HARBOR METHOD
.01 In general
.02 Special rules
.03 Tables
Table 1 – Total Loss
Table 2 – Near Total Loss
Table 3 – Interior Flooding Over 1 Foot
Table 4 – Structural Damage From Wind, Rain, or Debris
Table 5 – Roof Covering Damage From Wind, Rain, or Debris

- 2 -

Table 6 – Damage to a Detached Structure
Table 7 – Damage to Decking

SECTION 5. EXAMPLES

SECTION 6. REDUCTION FOR NO-COST REPAIRS

SECTION 7. EFFECTIVE DATE

SECTION 8. PAPERWORK REDUCTION ACT

SECTION 9. DRAFTING INFORMATION

SECTION 1. PURPOSE
.01 This revenue procedure provides the Cost Indexes Safe Harbor
Method that individual taxpayers may use in determining the amount of their
casualty losses pursuant to § 165 of the Internal Revenue Code for their
personal-use residential real property (as defined in section 3.02 of this revenue
procedure) damaged or destroyed as a result of Hurricane and Tropical Storm
Harvey, Hurricane Irma, and Hurricane Maria (the “2017 Hurricanes”).
Specifically, this revenue procedure provides a safe harbor method that
individuals may use to determine the decrease in fair market value of their
personal-use residential real property on their U.S. income tax returns filed with
the Internal Revenue Service (IRS).
.02 The IRS will not challenge an individual’s determination of the
decrease in fair market value of personal-use residential real property attributable
to one of the 2017 Hurricanes if the individual qualifies for and uses the safe
harbor method described in section 4 of this revenue procedure.

- 3 -

.03 If an individual uses the safe harbor method described in section 4 of
this revenue procedure, the individual also must take into account the value of
any no-cost repairs as described in section 6 of this revenue procedure.
.04 Use of the safe harbor method described in this revenue procedure is
not mandatory. An individual may, instead, use a safe harbor method described
in Rev. Proc. 2018-08, 2018-02 I.R.B. XX, or the actual reduction in the fair
market value of the personal-use residential real property, pursuant to § 1.165-
7(a)(2) of the Income Tax Regulations, if the individual has proper substantiation.
.05 The safe harbor method provided in this revenue procedure applies
only to the circumstances within the scope of this revenue procedure and may
not be used in any other circumstances.
SECTION 2. BACKGROUND
.01 Section 165(a) generally provides that a taxpayer may deduct any loss
sustained during the taxable year and not compensated for by insurance or
otherwise. With respect to property not connected with a trade or business or a
transaction entered into for profit, § 165(c)(3) limits an individual’s deductions to
losses arising from fire, storm, shipwreck, or other casualty, or from theft.
.02 Section 165(h) imposes two limitations on casualty and theft loss
deductions for property not connected with a trade or business or transaction
entered into for profit. Section 165(h)(1) provides that any loss to an individual
described in § 165(c)(3) shall be allowed only to the extent that the amount of the
loss arising from each casualty, or from each theft, exceeds $100. Section
165(h)(2) provides that if personal casualty and theft losses for any taxable year

- 4 -

exceed personal casualty and theft gains for the taxable year, the losses are
allowed only to the extent of the sum of the amount of the gains, plus so much of
the excess as exceeds ten percent of the adjusted gross income of the individual.
.03 Section 165(h)(4)(E) provides that to the extent an individual’s
casualty loss is covered by insurance, such loss shall be taken into account only
if the individual files a timely insurance claim with respect to such loss.
.04 Section 165(i)(1) allows an individual who suffered a loss occurring in
a disaster area and attributable to a Federally declared disaster to take the loss
into account for the taxable year immediately preceding the taxable year in which
the disaster occurred.
.05 Section 165(i)(5)(A) defines “Federally declared disaster” as any
disaster subsequently determined by the President of the United States to
warrant assistance by the Federal Government under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act (“Stafford Act”). Section
165(i)(5)(B) defines “disaster area” as the area so determined to warrant such
assistance.
.06 The Disaster Tax Relief and Airport and Airway Extension Act of 2017
(“Disaster Tax Relief Act”), Pub. L. No. 115-63, 131 Stat. 1168, 1182-1183 (Sept.
29, 2017), modifies some of the general rules under § 165 for losses in certain
geographic areas. Section 504(b) of the Disaster Tax Relief Act increases the
§ 165(h)(1) dollar limitation from $100 to $500, waives the § 165(h)(2) ten
percent of adjusted gross income limitation, increases the § 63 standard
deduction, and provides that such increase in the standard deduction is allowed

- 5 -

in computing the alternative minimum tax. Section 504(b) of the Disaster Tax
Relief Act applies only to net disaster losses, which are the excess of losses
attributable to Hurricanes Harvey, Irma, and Maria and that arose in the
Hurricane Harvey disaster area, Hurricane Irma disaster area, or Hurricane Maria
disaster area after particular dates, over personal casualty gains.
.07 Under § 501(a)(2) of the Disaster Tax Relief Act, “Hurricane Harvey
disaster area,” “Hurricane Irma disaster area,” and “Hurricane Maria disaster
area” are areas with respect to which a major disaster has been declared by the
President under § 401 of the Stafford Act by reason of Hurricane Harvey,
Hurricane Irma, and Hurricane Maria, respectively. For areas with respect to
which a major disaster has been declared by the President under § 401 of the
Stafford Act, see www.fema.gov/disasters
.
.08 Section 1.165-1(c)(4) provides that in determining the amount of loss
sustained, adjustments must be made for any insurance or other compensation
received.
.09 Section 1.165-1(d)(2)(iii) provides that if a taxpayer deducted a loss
and in a subsequent taxable year receives reimbursement for such loss, the
taxpayer does not recompute the tax for the taxable year in which the deduction
was taken but includes the amount of such reimbursement in gross income for
the taxable year in which received, subject to the provisions of section 111,
relating to recovery of amounts previously deducted.
.10 Section 1.165-7(b) provides that the amount of a casualty loss is the
lesser of (1) the difference between the fair market value of the property

- 6 -

immediately before the casualty and the fair market value immediately after the
casualty, or (2) the adjusted basis of the property. Section 1012 and § 1.1012-
1(a) provide that the basis of property generally is its cost. Section 1016(a)(1)
and § 1.1016-2(a) provide that the basis of property is adjusted for any
expenditure, receipt, loss, or other item, properly chargeable to capital account,
including the cost of improvements and betterments made to the property.
.11 Section 1.165-7(a)(2)(i) provides that to determine the amount of the
deductible loss under section 165(a), the fair market value of the property
immediately before and immediately after the casualty generally shall be
ascertained by competent appraisal. Section 1.165-7(a)(2)(ii) provides that the
cost of repairs to the property damaged is acceptable as evidence of the
decrease in value of the property if the taxpayer shows that: (1) the repairs are
necessary to restore the property to its condition immediately before the casualty;
(2) the amount spent for such repairs is not excessive; (3) the repairs do not care
for more than the damage suffered; and (4) the value of the property after the
repairs does not, as a result of the repairs, exceed the value of the property
immediately before the casualty. In order to use the cost-of-repairs method to
determine the decrease in fair market value, the taxpayer must actually make the
repairs rather than rely on estimates of repairs that will be performed in the future
or not at all. See Lamphere v. Commissioner, 70 T.C. 391, 396 (1978), acq.,
1978-2 C.B. 2; Farber v. Commissioner, 57 T.C. 714, 719 (1972), acq., 1972-2
C.B. 2. But see § 4.02 of Rev. Proc. 2018-08 (providing an estimated repair cost
safe harbor method).

- 7 -

.12 Section 1.165-7(b)(2)(ii) provides that in determining a casualty loss
involving real property and improvements thereon not used in a trade or business
or in any transaction entered into for profit, the improvements (such as buildings
and ornamental trees and shrubbery) to the property damaged or destroyed are
considered an integral part of the property, and no separate basis need be
apportioned to the improvements.
.13 Taxpayers report gains and losses from casualties on Form 4684
according to the Form 4684 instructions, as updated at www.irs.gov/form4684
.
See special instructions at www.irs.gov/form4684 for taxpayers electing under
§ 165(i) to report their casualty losses calculated under this revenue procedure
on an original or amended 2016 tax return.
.14 Rev. Proc. 2018-08, provides safe harbor methods that individuals
may use in determining the amount of their casualty and theft losses under § 165
for personal-use residential real property and personal belongings. Due to the
widespread devastation from the 2017 Hurricanes, the Treasury Department and
the IRS are providing an additional safe harbor method that individuals may use
under § 1.165-7(a)(2) to measure the decrease in the fair market value of their
personal-use residential real property that was damaged or destroyed as a result
of the 2017 Hurricanes.
SECTION 3. SCOPE
.01 In general. An individual with a U.S. income tax filing requirement who
suffered a casualty loss to the individual’s personal-use residential real property
located in the 2017 Disaster Area as a result of the 2017 Hurricanes may use the

- 8 -

safe harbor method provided in this revenue procedure in determining the
amount of the individual’s casualty loss under § 165. The term “2017 Disaster
Area” means the entire states of Texas, Louisiana, Florida, Georgia, and South
Carolina, the Commonwealth of Puerto Rico, and the territory of the U.S. Virgin
Islands. This revenue procedure applies to bona fide residents of Puerto Rico
and the U.S. Virgin Islands only where these individuals otherwise have a U.S.
income tax filing requirement.
.02 Definition of personal-use residential real property and personal
residence. For purposes of this revenue procedure, personal-use residential real
property is real property, including improvements (such as buildings and
ornamental trees and shrubbery), that is owned by the individual who suffered a
casualty loss and that contains at least one personal residence. Personal-use
residential real property does not include a personal residence if any part of the
personal residence is used as rental property or contains a home office used in a
trade or business or transaction entered into for profit. For purposes of this
revenue procedure, a personal residence is a single family residence, or a single
unit within a contiguous group of attached residential units (for example, a
townhouse or duplex), owned by the individual who suffered a casualty loss, and
consists of the total enclosed square footage of the residence or single unit,
including any enclosed structures attached to the residence or single unit. For
example, a personal residence includes a basement and an attached garage, but
does not include a deck or screened-in porch. For purposes of this revenue
procedure, a personal residence does not include a condominium or cooperative

- 9 -

unit, or any other property for which the individual who suffered the casualty loss
does not own the structural components of the building (such as the foundation,
walls, and roof), or owns only a fractional interest in all of the structural
components of the building, or a mobile home or trailer.
.03 Use of Cost Indexes Safe Harbor Method. An individual described in
section 3.01 of this revenue procedure may use the Cost Indexes Safe Harbor
Method if the individual’s personal-use residential real property has suffered, in
the circumstances described below, (1) a total loss of a personal residence, (2) a
near total loss of a personal residence, (3) interior flooding over 1 foot of a
personal residence, (4) structural damage from wind, rain, or debris to a personal
residence, (5) roof covering damage from wind, rain, or debris to a personal
residence, (6) damage to a detached structure, or (7) damage to decking:
(1) Total loss. A total loss of a personal residence occurs if, as a
result of one of the 2017 Hurricanes, any one of the following occurred:
(a) The personal residence either collapsed or is structurally
unsound (for example, the structural connections in the personal residence, such
as nails and anchor bolts, have corroded as a result of prolonged exposure to
water over an extended period of time to the extent that they compromise the
structural integrity of the personal residence);
(b) The state or local government or any political subdivision
thereof has ordered that the personal residence be demolished or relocated;
(c) The individual has sold the personal residence to an
unrelated party for a price that reflects the fair market value solely of the land on

- 10 -

which the personal residence is situated; or
(d) The personal residence sustained damage that satisfies
the definition of near total loss, as described in section 3.03(2) of this revenue
procedure, and the individual has demolished the personal residence.
(2) Near total loss. The near total loss of a personal residence
occurs if, as a result of one or more of the 2017 Hurricanes, the personal
residence sustained severe damage necessitating the removal and disposal of
substantially all interior wall frame coverings (including drywall and other wall
frame coverings), floorings, electrical lines, ducts, plumbing, and other fixtures.
For a personal residence sustaining near total loss, only the wood frame, rafters,
and outside façade of the personal residence remain structurally sound and
reusable.
(3) Interior flooding over 1 foot. Interior flooding over 1 foot occurs
if a personal residence was flooded with water to a height of more than 1 foot as
a result of one or more of the 2017 Hurricanes, but did not sustain damage that
falls within the definition of total loss or near total loss, as described in sections
3.03(1) and (2) of this revenue procedure.
(4) Structural damage from wind, rain, or debris. Structural damage
from wind, rain, or debris occurs if a personal residence sustained major
structural damage to the roof and/or outside wall(s) as a result of wind or
windblown debris from one or more of the 2017 Hurricanes that exposed part or
all of the interior of the personal residence to rain or debris, requiring substantial
renovation of the damaged areas. Substantial renovation requires the removal

- 11 -

and replacement of drywall or other wall frame coverings, replacement of trim,
and repair and painting of the damaged interior areas of the personal residence.
(5) Roof covering damage from wind, rain, or debris. Roof covering
damage from wind, rain, or debris occurs if a personal residence sustains
damage from wind, rain, or windblown debris to roofing felt, shingles, flashings,
fascia, or soffit as a result of one or more of the 2017 Hurricanes.
(6) Damage to a detached structure. Damage to a detached
structure occurs if, as a result of one or more of the 2017 Hurricanes, the
detached structure requires either complete or major rebuilding. A detached
structure is an enclosed structure of wood-frame construction that has some
electrical capabilities, but little or no interior finishing. A detached structure is
located on personal-use residential real property and includes a shed, shop, or
detached garage that is not used in connection with a trade or business and that
is not equipped with heating or air conditioning.
(7) Damage to decking. Damage to decking occurs if, as a result of
one or more of the 2017 Hurricanes, the decking attached to a personal
residence was damaged or destroyed.
.04 Taking into account no-cost repairs. An individual using the Cost
Indexes Safe Harbor Method described in section 4 of this revenue procedure
must take into account the value of any no-cost repairs as described in section 6
of this revenue procedure.
.05 Limited use of safe harbor method. The safe harbor method described
in section 4 is available only in the circumstances described in this revenue

- 12 -

procedure.
SECTION 4. COST INDEXES SAFE HARBOR METHOD
.01 In general. An individual within the scope of this revenue procedure
may use the safe harbor method described in this section 4. If an individual
owns two or more parcels of personal-use residential real property, the use of the
Cost Indexes Safe Harbor Method for one parcel does not require the individual
to use the Cost Indexes Safe Harbor Method, or any safe harbor method, for any
other parcel.
Under the Cost Indexes Safe Harbor Method, an individual may use one
or more of the cost indexes, as applicable, provided in this section 4 to determine
the decrease in the fair market value of personal-use residential real property,
including the personal residence, detached structures, and decking. Cost
indexes are provided for three size categories of personal residences based on
the square footage of the personal residence and for seven geographic areas.
In computing the decrease in fair market value under the Cost Indexes
Safe Harbor Method, an individual must take into account the value of any no-
cost repairs as described in section 6 of this revenue procedure.
If the Cost Indexes Safe Harbor Method described in this section 4 is
used, the amount determined is the full amount of the decrease in fair market
value of that personal-use residential real property and may not be increased by
amounts related to items such as landscaping, debris removal, demolition, etc.
The Cost Indexes Safe Harbor Method applies only to the following three
types of improvements on an individual’s personal-use residential real property: a

- 13 -

personal residence (as described in section 3.02 of this revenue procedure), a
detached structure (as described in section 3.03(6) of this revenue procedure),
and a deck (as described in section 3.03(7) of this revenue procedure). If there
is any other type of improvement on an individual’s personal-use residential real
property that is not described in sections 3.02, 3.03(6), and 3.03(7) of this
revenue procedure, the individual may use the Cost Indexes Safe Harbor Method
to determine the decrease in fair market value of the personal-use residential real
property, but may not add any amount for the other type of improvements. The
decrease in fair market value of the other type of improvement may be
determined by another applicable method. For example, under the Cost Indexes
Safe Harbor Method, no amount may be added to the decrease in fair market
value of the personal-use residential real property for a residence that contains a
home office, a residence in a structure that contains five or more residential units,
or a detached structure equipped with heating or air conditioning.
.02 Special Rules.
(1) A personal residence may not be subject to more than one of
the following tables: Table 1 (Total Loss); Table 2 (Near Total Loss); or Table 3
(Interior Flooding Over 1 Foot).
(2) A personal residence subject to Table 3 (Interior Flooding Over
1 Foot) also may be subject to Table 4 (Structural Damage From Wind, Rain, or
Debris), but the square footage flooded may not be included in the square
footage used for Table 4 (Structural Damage From Wind, Rain, or Debris).
(3) A personal residence subject to Table 3 (Interior Flooding Over

- 14 -

1 Foot) or Table 4 (Structural Damage From Wind, Rain, or Debris) also may be
subject to Table 5 (Roof Covering Damage from Wind, Rain, or Debris).
(4) Table 6 (Damage to a Detached Structure) and Table 7
(Damage to Decking) may apply to any personal-use residential real property
without regard to whether Table 1 (Total Loss), Table 2 (Near Total Loss), Table
3 (Interior Flooding Over 1 Foot), Table 4 (Structural Damage From Wind, Rain,
or Debris), or Table 5 (Roof Covering Damage From Wind, Rain, or Debris) apply
to a personal residence located on such property.
(5) If an individual’s personal-use residential real property contains
more than one personal residence and the individual uses the Cost Indexes Safe
Harbor Method, the individual must apply the applicable table, or combination of
tables, to each personal residence.
.03 Tables. The following tables set forth the cost indexes for each
corresponding category described in section 3.03 of this revenue procedure:
Table 1 – Total Loss
Total Loss – Cost Index Per Square Foot
Personal
Residence Size
and Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Small Personal
Residence
(Personal residence is
less than 1,500 square
feet)
$231 $231 $235 $231 $231 $231 $293
Medium Personal
Residence
(Personal residence is
between 1,500 and
3,000 square feet)
$195 $195 $208 $195 $195 $195 $248

- 15 -

Large Personal
Residence
(Personal residence is
greater than 3,000
square feet)
$174 $175 $193 $174 $175 $175 $222

For a personal residence that falls within the description of a total loss in
section 3.03(1) of this revenue procedure, use Table 1 as follows:
(1) Determine the total square footage of the personal residence.
(2) Determine the size of the personal residence based on the total square
footage described in Table 1.
(3) Determine which column applies based on the geographic location of the
personal residence.
(4) Multiply the total square footage of the personal residence (from step 1) by
the applicable cost index based on the appropriate column of Table 1.
Table 2 – Near Total Loss

Near Total Loss – Cost Index Per Square Foot
Personal
Residence Size
and Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Small Personal
Residence
(Personal residence is
less than 1,500 square
feet)
$185 $187 $190 $185 $187 $187 $237
Medium Personal
Residence
(Personal residence is
between 1,500 and 3,000
square feet)
$156 $158 $166 $156 $158 $158 $201
Large Personal
Residence
(Personal residence is
$139 $141 $154 $139 $141 $141 $179

- 16 -

greater than 3,000
square feet)

For a personal residence that falls within the description of a near total
loss in section 3.03(2) of this revenue procedure, use Table 2 as follows:
(1) Determine the total square footage of the personal residence.
(2) Determine the size of the personal residence based on the total square
footage described in Table 2.
(3) Determine which column applies based on the geographic location of the
personal residence.
(4) Multiply the total square footage of the personal residence (from step 1) by
the applicable cost index based on the appropriate column of Table 2.
Table 3 – Interior Flooding Over 1 Foot

Interior Flooding Over 1 Foot – Cost Index Per Square Foot
Personal
Residence Size
and Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Small Personal Residence
(Personal residence is
less than 1,500 square feet)
$139 $143 $146 $139 $143 $143 $182
Medium Personal
Residence
(Personal residence is
between 1,500 and 3,000
square feet)
$117 $121 $125 $117 $121 $121 $154
Large Personal Residence
(Personal residence is
greater than 3,000 square
feet)
$104 $108 $116 $104 $108 $108 $137

The cost indexes in Table 3 are applied only to the square footage of the
personal residence that was flooded, rather than the total square footage.

- 17 -

For a personal residence that was flooded to a height of greater than 1
foot, as described in section 3.03(3) of this revenue procedure, and does not fall
within the description of a total loss or near total loss in sections 3.03(1) and (2)
of this revenue procedure, use Table 3 as follows:
(1) Determine the total square footage of the personal residence.
(2) Determine the size of the personal residence based on the total square
footage described in Table 3.
(3) Determine the square footage of the flooded area of the personal residence.
(4) Determine which column applies based on the geographic location of the
personal residence.
(5) Multiply the flooded square footage (from step 3) by the applicable cost index
based on the appropriate column of Table 3.
Table 4 – Structural Damage From Wind, Rain, or Debris

Structural Damage From Wind, Rain, or Debris – Cost Index Per Square Foot
Percent of Damage Category

Percent Damaged = Square Footage of Damaged Area / Total Square Footage of Personal
Residence
Percent Damaged
and Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
15% to 25% $189 $189 $202 $189 $189 $189 $240
26% to 50% $174 $174 $186 $174 $174 $174 $221
51% to 100% $157 $157 $168 $157 $157 $157 $199

The cost indexes in Table 4 apply only to the square footage of the
damaged area of the personal residence, rather than the total square footage.

- 18 -

Personal residences that sustained 100% wind, rain, or debris damage are those
that sustained major structural damage throughout the entire personal residence
necessitating substantial renovation (as defined in section 3.03(4) of this revenue
procedure) of all of the rooms in the personal residence.
For a personal residence that sustained structural damage from wind, rain,
or debris, use Table 4 as follows:
(1) Determine the total square footage of the personal residence.
(2) Determine the square footage of the damaged portion of the personal
residence by adding the square footage of each room needing substantial
renovation.
(3) Determine the percent of square footage of the personal residence that was
damaged by dividing the square footage that was damaged (from step 2) by
the total square footage (from step 1).
(4) Determine which column applies based on the geographic location of the
personal residence.
(5) Multiply the square footage of the damaged area (from step 2) by the
applicable cost index based on the appropriate column of Table 4 (based on
the percent of damage range in column 1 of Table 4).
Table 5 – Roof Covering Damage From Wind, Rain, or Debris

Roof Covering Damage From Wind, Rain, or Debris – Cost Index Per Square Foot
Personal Residence Size
and Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Small Personal Residence
(Personal residence is
less than 1,500 square feet)
$8 $8 $8 $8 $8 $8 $10

- 19 -

Medium Personal Residence
(Personal residence is
between 1,500 and 3,000 square
feet)
$8 $8 $8 $8 $8 $8 $10
Large Personal Residence
(Personal residence is
greater than 3,000 square feet

)
$7 $7 $7 $7 $7 $7 $9

If the personal residence sustained roof covering damage from wind, rain,
or debris as described in section 3.03(5) of this revenue procedure, apply the
applicable cost index in Table 5 to the total square footage under the roof
(including the porch, patios, and overhangs).
For a personal residence that sustained roof covering damage from wind,
rain, or debris, as described in section 3.03(5) of this revenue procedure, use
Table 5 as follows:
(1) Determine the total square footage of the ground floor of the personal
residence.
(2) Add to the total square footage of the ground floor (from step 1) the square
footage of any area of the roof that extends beyond the ground floor, such as
porches and attached carports, to determine the total square footage under
the roof.
(3) Determine the applicable cost index in Table 5 based on the total square
footage and the geographic location of the personal residence.
(4) Multiply the total square footage under the roof (from step 2) by the applicable
cost index based on the appropriate column of Table 5.
Table 6 – Damage to a Detached Structure

Damage to a Detached Structure – Cost Index Per Square Foot

- 20 -

Detached Structure Size
and Location

Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Up to 200 square feet $63 $65 $71 $63 $65 $65 $81
Over 200 and up to 400
square feet
$50 $51 $56 $50 $51 $51 $64
Over 400 square feet $44 $46 $50 $44 $46 $46 $58

For a detached structure on personal-use residential real property, as
described in section 3.03(6) of this revenue procedure, apply the applicable cost
index in Table 6 as follows:
(1) Determine the total square footage of the detached structure.
(2) Determine the size of the detached structure based on the total square
footage described in column 1 of Table 6.
(3) Determine which column applies based on the geographic location of the
personal residence.
(4) Multiply the total square footage of the detached structure (from step 1) by the
applicable cost index based on the appropriate column of Table 6.
Table 7 – Damage to Decking

Damage to Decking – Cost Index Per Square Foot
Location
Texas Louisiana Florida Georgia
South
Carolina
Puerto
Rico
U.S.
Virgin
Islands
Use for all types of
decking
$27 $27 $29 $27 $27 $27 $33

For decking attached to a personal residence, as described in section
3.03(7) of this revenue procedure, apply the cost index in Table 7 as follows:
(1) Determine the square footage of the damaged area of the deck.

- 21 -

(2) Multiply the square footage of the damaged area of the deck (from step 1) by
the applicable cost index based on the appropriate column of Table 7.
SECTION 5. EXAMPLES
The following examples illustrate the application of the Cost Indexes Safe
Harbor Method described in section 4 of this revenue procedure.
Example 1. Prior to Hurricane Irma, an individual purchased a personal
residence in Florida for $500,000. The personal residence is 2,000 square feet
and the personal-use residential real property does not contain any decking or
detached structures. The personal residence was flooded for over three weeks,
causing the structural connections in the personal residence to corrode to the
extent they must be replaced. The personal residence is located in the 2017
Disaster Area. Insurance and other reimbursements total $100,000. The
individual chooses to use the Cost Indexes Safe Harbor Method. Because the
corrosion damage to the personal residence falls within the definition of total loss,
as defined in section 3.03(1) of this revenue procedure, the individual uses Table
1 of the Cost Indexes Safe Harbor Method to determine the decrease in fair
market value of the personal-use residential real property. The individual
multiplies the square footage of the personal residence by the cost index for a
Medium Personal Residence in Florida in Table 1, as follows:
2,000 sq. ft. x $208/sq. ft. = $416,000
The individual compares the decrease in fair market value, $416,000, with
the basis in the personal-use residential real property, $500,000, and from the
smaller of these two amounts, $416,000, subtracts the insurance and other

- 22 -

reimbursements of $100,000. The amount of the individual’s casualty loss is
$316,000 ($416,000 - $100,000).
Example 2. Assume the same facts in Example 1, except that the
individual purchased the personal-use residential real property twenty years ago
for $120,000 and paid no additional amounts for improvements or remodeling.
The individual compares the decrease in fair market value, calculated using the
Cost Indexes Safe Harbor Method in Example 1, with the basis of the personal-
use residential real property. Since the basis of $120,000 is less than the
decrease in fair market value, $416,000, the individual’s casualty loss is limited to
the basis of $120,000. After subtracting insurance and other reimbursements of
$100,000 from the basis of $120,000, the amount of the individual’s casualty loss
is $20,000 ($120,000 - $100,000 = $20,000).
Example 3. An individual’s personal residence in Puerto Rico is
substantially damaged by a storm surge from Hurricane Maria. The individual is
not a bona fide resident of Puerto Rico. The individual’s personal-use residential
real property is located in the 2017 Disaster Area. The damage falls within the
definition of near total loss, as defined in section 3.03(2) of this revenue
procedure, since all of the drywall, floorings, electrical lines, ducts, plumbing, and
other fixtures need to be replaced. Prior to Hurricane Maria, the individual
purchased the personal-use residential real property for $190,000 and spent
$10,000 for improvements to remodel the residence. Immediately prior to
Hurricane Maria, the adjusted basis of the property was $200,000 ($190,000 cost
+ $10,000 improvements). The personal residence is 2,000 square feet and the

- 23 -

personal-use residential real property does not contain any decking or detached
structures. The individual paid $5,000 to have debris cleared from the personal-
use residential real property. Insurance and other reimbursements total
$100,000.
Because the damage to the personal residence falls within the definition of
near total loss, the individual uses Table 2 of the Cost Indexes Safe Harbor
Method to determine the decrease in fair market value of the personal-use
residential real property. Using Table 2 of the Cost Indexes Safe Harbor Method,
the decrease in fair market value of the personal-use residential real property is
determined by multiplying the square footage of the personal residence by the
cost index for a Medium Personal Residence in Puerto Rico as follows:
2,000 sq. ft. x $158/sq. ft. = $316,000
Because the individual chooses to use the Cost Indexes Safe Harbor
Method for determining the decrease in fair market value, the $5,000 debris
removal costs are not added to the safe harbor amount of $316,000. The
individual compares the adjusted basis of the personal-use residential real
property to the decrease in fair market value determined by using the Cost
Indexes Safe Harbor Method. Since the adjusted basis of $200,000 is less than
the decrease in fair market value, $316,000, the individual’s casualty loss is
limited to the adjusted basis of $200,000. After subtracting $100,000, the
amount of insurance and other reimbursements received, from the adjusted basis
of $200,000, the amount of the individual’s casualty loss is $100,000 ($200,000 -
$100,000 = $100,000).

- 24 -

Example 4. The first floor of an individual’s personal residence in Texas
was flooded with 3 feet of water during Hurricane Harvey. As a result of the
flooding, all of the flooring and drywall on the first floor needs to be replaced.
The second floor of the personal residence is not damaged. While the personal
residence sustained flooding of more than 1 foot, it did not sustain damage that
falls within the definition of total loss or near total loss in sections 3.03(1) and (2)
of this revenue procedure. Therefore, the personal residence sustained interior
flooding over 1 foot as described in section 3.03(3) of this revenue procedure. In
addition, the deck attached to the personal residence was completely destroyed
by Hurricane Harvey. The personal-use residential real property is located in the
2017 Disaster Area. The personal residence is 2,000 square feet and the
personal-use residential real property does not contain any detached structures.
The total square footage of the flooded rooms on the first floor is 1,000 square
feet. Prior to Hurricane Harvey, the individual purchased the personal-use
residential real property for $200,000. Insurance and other reimbursements total
$90,000. The individual chooses to use the Cost Indexes Safe Harbor Method.
To calculate the decrease in fair market value of the personal-use
residential real property, the individual uses the first column of Table 3 to
determine the size of the personal residence based on the total square footage of
the personal residence. The individual multiplies the flooded square footage of
the personal residence, 1,000 square feet, by $117, the cost index for a Medium
Personal Residence in Texas, in Table 3.
1,000 sq. ft. x $117/sq. ft. = $117,000

- 25 -

The deck is 200 square feet.

Using Table 7, the individual multiplies the square footage of the damaged
area of the deck, 200 square feet, by the cost index of $27 for Texas in Table 7.
200 sq. ft. x $27/sq. ft. = $5,400
To determine the total decrease in fair market value of the personal-use
residential real property the individual adds $5,400 to $117,000.
$5,400 + $117,000 = $122,400
The individual then compares the basis of the personal-use residential real
property, $200,000, to the decrease in fair market value determined by using the
Cost Indexes Safe Harbor Method, $122,400. Since the decrease in fair market
value of $122,400 is less than the basis of $200,000, the individual’s casualty
loss is limited to $122,400. After subtracting $90,000, the amount of insurance
and other reimbursements, from $122,400, the amount of the individual’s
casualty loss is $32,400 ($122,400 - $90,000 = $32,400).
Example 5. Prior to Hurricane Irma, an individual purchased personal-use
residential real property for $200,000 in Georgia and spent $5,000 for
improvements to the personal-use residential real property. Two trees fell onto
the individual’s personal residence during Hurricane Irma, destroying a portion of
the roof. Rain from the hurricane soaked the walls and flooring of two bedrooms
and the living room, necessitating removal and replacement of drywall and wood
paneling, roof panels, trusses, and flooring. The rest of the personal residence
remains undamaged. The personal residence was not flooded. Therefore, the
damage constitutes structural damage from wind, rain, or debris, as described in

- 26 -

section 3.03(4) of this revenue procedure. The individual’s personal-use
residential real property is located in the 2017 Disaster Area. The personal
residence is 2,000 square feet and the personal-use residential real property
does not contain any decking or detached structures. The damaged two
bedrooms and living room total 1,000 square feet. Insurance and other
reimbursements total $100,000.
The individual chooses to use the Cost Indexes Safe Harbor Method.
Using Table 4, the percentage of square footage of the personal residence that
was damaged by the hurricane is determined by dividing the total square footage
of the personal residence by the square footage of the personal residence that
was damaged as follows:
1,000 sq. ft. / 2,000 sq. ft. = 0.50 or 50% of the total square footage was
damaged.
The individual uses the cost index in the column for Georgia of Table 4 for 26%
to 50% damage and multiplies it by the number of square feet that were
damaged.
$174/sq. ft.

x 1,000 sq. ft. = $174,000
The roof covering also sustained damage that necessitated replacement
of all roof shingles, felt lining, and flashings. The total square footage of the
ground floor of the personal residence is 2,000 square feet. The total square
footage under the roof, including porches, patios, and overhangs, is 2,200 square
feet. The individual multiplies the cost index for a Medium Personal Residence in
Georgia in Table 5 by 2,200 square feet, the total square footage under the roof.

- 27 -

2,200 sq. ft.

x $8/sq. ft.

= $17,600
The individual adds $17,600 to $174,000 to determine the total decrease
in fair market value of the personal-use residential real property.
$17,600 + $174,000 = $191,600
The individual compares the decrease in fair market value, $191,600, with
the adjusted basis, $205,000, and from the smaller of these two amounts,
$191,600, subtracts insurance and other reimbursements of $100,000. The
amount of the individual’s casualty loss is $91,600 ($191,600 - $100,000 =
$91,600).
Example 6. Winds from Hurricane Maria caused a tree to fall across a
detached garage located on an individual’s personal-use residential real property
in the U.S. Virgin Islands. The individual is not a bona fide resident of the U.S.
Virgin Islands. Prior to Hurricane Maria, the individual purchased the personal-
use residential real property for $200,000. The personal residence is located in
the 2017 Disaster Area. The personal residence is not damaged by Hurricane
Maria. The personal-use residential real property does not contain any decking
or other detached structures. The garage suffered significant damage and
requires major rebuilding. The total square footage of the garage is 400 square
feet. The garage was not insured.
The individual chooses to use the Cost Indexes Safe Harbor Method.
Because the garage is a detached structure, as described in section 3.03(6) of
this revenue procedure, the individual uses Table 6 to determine the decrease in
fair market value of the personal-use residential real property. Using Table 6, the

- 28 -

individual multiplies the total square footage of the garage, 400 square feet, by
the cost index of $64 in the column for the U.S. Virgin Islands of Table 6.
400 sq. ft. x $64/sq. ft. = $25,600
The individual’s basis in the personal-use residential real property is
$200,000. The individual compares the decrease in fair market value, $25,600,
with the basis, $200,000. Since the decrease in fair market value is less than the
basis, the amount of the individual’s casualty loss is $25,600.
Example 7. Winds from Tropical Storm Harvey blew down a pine tree that
destroyed part of a deck attached to the back of an individual’s personal
residence in Louisiana. The personal-use residential real property is located in
the 2017 Disaster Area. The individual’s basis in the personal-use residential
real property is $200,000. Neither the personal residence nor any detached
structure was damaged by the fallen tree. The deck is 450 square feet. It is
necessary to rebuild one-half of the deck. The remaining half of the deck is not
damaged and remains structurally sound.
The individual chooses to use the Cost Indexes Safe Harbor Method for
the damage described in section 3.03(7) of this revenue procedure and uses
Table 7 to determine the decrease in fair market value of the personal-use
residential real property.
The square footage of the damaged area of the deck is one-half of 450
square feet, which is 225 square feet. Using Table 7, the individual multiplies the
square footage of the damaged area of the deck, 225 square feet, by the cost
index of $27 in the column for Louisiana in Table 7.

- 29 -

225 sq. ft. x $27/sq. ft. = $6,075
The individual compares the decrease in fair market value, $6,075, with
the basis, $200,000. Since the decrease in fair market value is less than the
basis, the amount of the individual’s casualty loss is $6,075.
SECTION 6. REDUCTION FOR NO-COST REPAIRS
Under § 165(a), a casualty loss must be reduced by insurance or other
amounts received, such as amounts given to an individual to repair the damage
to the individual’s property due to the casualty. This includes the value of repairs
to, or rebuilding of, the individual’s personal-use residential real property
provided by another party at no cost to the individual (“no-cost repairs”), such as
the repair or rebuilding of an individual’s personal residence by volunteers. No-
cost repairs include repairs made for a de minimis or token cost, donation, or
gratuity.
An individual who uses the Cost Indexes Safe Harbor Method provided in
section 4 of this revenue procedure to determine the decrease in the fair market
value of the individual’s personal-use residential real property must reduce the
loss, determined using the Cost Indexes Safe Harbor Method, by the value of
any no-cost repairs. For this purpose, the value of a no-cost repair is based
upon the total square footage completely repaired at no cost to the individual.
The total square footage completely repaired at no cost to the individual is
multiplied by the same cost index the individual used to determine the decrease
in the fair market value of the individual’s personal-use residential real property.

- 30 -

This amount is then subtracted from the loss determined under the Cost Indexes
Safe Harbor Method.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for losses that are attributable to the
2017 Hurricanes and that arose in the 2017 Disaster Area after August 22, 2017.
SECTION 8. PAPERWORK REDUCTION ACT
The collection of information contained in this revenue procedure has
been reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545-0074. Please refer to the Paperwork Reduction Act statement
accompanying Form 1040, U.S. Individual Income Tax Return, for further
information.
SECTION 9. DRAFTING INFORMATION
The principal author of this revenue procedure is Joanna L. Trebat of the
Office of Associate Chief Counsel (Income Tax & Accounting). For further
information regarding this revenue procedure, contact Ms. Trebat at (202) 317-
7003 (not a toll-free call).