The $500 is the statutory floor for each casualty loss during 2009. It had been $100 in prior years. The deductibility of the casualty loss is reduced by any insurance proceeds received and then only to the extent that the remaining loss exceeds 10% of the taxpayer's AGI. Keep in mind the amount of the loss for each event is the lesser of (1) basis or (2) decline in fair market value.
For example, suppose you have three qualifying losses and an AGI of $20,000. The first loss is $1,800, the second is $5,000 with insurance proceeds of $6,000, and the third is $4,500. The first and third losses are each reduced by the $500 statutory floor (2009) so they are limited to $1,300 and $4,000, respectively. The second loss is completely offset by insurance proceeds and results in a $1,000 gain that offsets part of the aforementioned losses. The net casualty loss before the AGI threshold is then $4,300 ((1,300 + 4,000) – 1,000). The deduction available on Schedule A is the residual amount over 10% of AGI, or in this case $2,300 (4,300 – (20,000/10)).
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