Apply the Form 4684 $100 per-casualty reduction and drop dependents' losses in the federal, NY, AL and HI casualty deductions

changelog.d/fix-casualty-loss-165h-reduction.fixed.md

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+Apply the Form 4684 $100 per-casualty reduction (26 U.S.C. 165(h)(1)) before the 10% floor, and leave tax unit dependents' losses off the filer's return, in the federal, New York, Alabama and Hawaii casualty loss deductions. Limit Alabama's deduction to declared-disaster losses from 2018, as federal law does, and Hawaii's from 2026 (Act 35, SLH 2026).

changelog.d/fix-mt-casualty-loss-misc-deduction.fixed.md

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+Count a Montana casualty and theft loss once on a joint return, and only in the column of the spouse who had it when spouses file separately, figured as on federal Form 4684 ($100 reduction, then the 10% floor on Montana AGI) per the 2021-2023 Form 2 Itemized Deductions Schedule, line 15.

changelog.d/fix-mt-separate-filing-allocations.fixed.md

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+Montana's federal income tax deduction for spouses filing separately on the same form now attributes federal tax to the spouse who earned the income and caps each spouse at 5,000; the child and dependent care expense deduction phases out on the couple's combined Montana AGI and is halved only for spouses filing separately on the same form; and the elderly homeowner/renter credit counts income without regard to losses.

policyengine_us/parameters/gov/irs/deductions/itemized/casualty/per_casualty_reduction.yaml

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+description: The IRS reduces each casualty or theft loss of personal-use property by this amount before applying the income floor.
+values:
+  2008-01-01: 100
+  2009-01-01: 500
+  2010-01-01: 100
+metadata:
+  unit: currency-USD
+  period: year
+  label: Casualty loss reduction per casualty
+  reference:
+    - title: 26 U.S.C. § 165(h)(1)
+      href: https://www.law.cornell.edu/uscode/text/26/165#h_1
+    - title: 2008 Form 4684, line 11
+      href: https://www.irs.gov/pub/irs-prior/f4684--2008.pdf#page=1
+    - title: 2009 Form 4684, line 11
+      href: https://www.irs.gov/pub/irs-prior/f4684--2009.pdf#page=1
+    - title: 2022 Form 4684, line 11
+      href: https://www.irs.gov/pub/irs-prior/f4684--2022.pdf#page=1
+    - title: IRS Publication 547 (2022), $100 Rule
+      href: https://www.irs.gov/pub/irs-prior/p547--2022.pdf#page=10

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/casualty_loss/non_disaster_losses_allowed.yaml

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+description: Hawaii allows personal casualty and theft losses that are not attributable to a declared disaster, if this is true.
+values:
+  2018-01-01: true
+  2026-01-01: false
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii non-disaster casualty losses allowed
+  reference:
+    - title: HRS § 235-2.4(l)(3) (unofficial compilation as of December 31, 2025)
+      href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=12
+    - title: Act 35, SLH 2026 (HB 2329 CD1), striking HRS § 235-2.4(l)(3)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=23
+    - title: Act 35, SLH 2026 (HB 2329 CD1), effective date
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=34
+    - title: Hawaii Department of Taxation Announcement No. 2026-06
+      href: https://files.hawaii.gov/tax/news/announce/ann26-06.pdf#page=2
+    - title: 2025 Hawaii Form N-11 Instructions, Casualty and Theft Losses
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=18

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/casualty_loss/per_casualty_reduction.yaml

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+description: Hawaii reduces each casualty or theft loss of personal-use property by this amount before applying the income floor.
+values:
+  2018-01-01: 100
+metadata:
+  unit: currency-USD
+  period: year
+  label: Hawaii casualty loss reduction per casualty
+  reference:
+    - title: HRS § 235-2.4(l)(1) (unofficial compilation as of December 31, 2025)
+      href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=12
+    - title: Act 35, SLH 2026 (HB 2329 CD1), HRS § 235-2.4(k)(1)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=22
+    - title: 2022 Hawaii Form N-11 Instructions, Casualty and Theft Losses
+      href: https://files.hawaii.gov/tax/forms/2022/n11ins.pdf#page=18
+    - title: 2025 Hawaii Form N-11 Instructions, Casualty and Theft Losses
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=19
+    - title: 2017 Form 4684, line 11
+      href: https://www.irs.gov/pub/irs-prior/f4684--2017.pdf#page=1

policyengine_us/parameters/gov/states/mt/tax/income/deductions/itemized/casualty_loss/applies.yaml

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+description: Montana allows a casualty and theft loss deduction on its Itemized Deductions Schedule, if this is true.
+metadata:
+  label: Montana casualty and theft loss deduction applies
+  period: year
+  unit: bool
+  reference:
+    - title: MCA § 15-30-2131(1)(a) (2021), itemized deductions by reference to 26 U.S.C. 161 and 211 (repealed effective 2024)
+      href: https://mca.legmt.gov/bills/2022/mca/title_0150/chapter_0300/part_0210/section_0310/0150-0300-0210-0310.html
+    - title: 2021 Montana Form 2 Instructions, Itemized Deductions Schedule, line 15
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2021_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34
+    - title: 2022 Montana Form 2 Instructions, Itemized Deductions Schedule, line 15
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2022_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=35
+    - title: 2023 Montana Form 2 Instructions, Itemized Deductions Schedule, line 15
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=39
+    # From 2024, Montana taxable income starts from federal taxable income and
+    # the Itemized Deductions Schedule is discontinued (SB 399).
+    - title: 2024 Montana Form 2 Instructions, Discontinued Worksheets and Schedules
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2024_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=8
+
+values:
+  2021-01-01: true
+  2024-01-01: false

policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/itemizing/casualty_loss_deduction.yaml

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+# 26 U.S.C. 165(h)(1), as in effect for these years: a personal casualty loss is
+# allowed "only to the extent that the amount of the loss to such individual
+# arising from each casualty, or from each theft, exceeds $500 ($100 for taxable
+# years beginning after December 31, 2009)". P.L. 119-108 (2026) keeps $100 for
+# losses other than qualified disaster-related losses, which the model has no
+# input for. 26 U.S.C. 165(h)(2)(A): the net loss is allowed only to the extent
+# it exceeds 10 percent of adjusted gross income. 165(h)(4)(B): "a husband and
+# wife making a joint return for the taxable year shall be treated as 1
+# individual."
+# 2017 Form 4684: line 11 "Enter $100 ($500 if qualified disaster loss rules
+# apply; see instructions)", line 12 "Subtract line 11 from line 10. If zero or
+# less; enter -0-", line 17 "Enter 10% of your adjusted gross income", line 18
+# "Subtract line 17 from line 16. If zero or less, enter -0-".
+# IRS Publication 547 (2017, PDF p. 10), $100 Rule: "If you and your spouse file
+# a joint return, you are treated as one individual in applying the $100 rule."
+# "If you and your spouse have a casualty or theft loss and you file separate
+# returns, each of you must reduce your loss by $100."
+# The model records one loss amount per person, not separate casualty events,
+# so a return's losses are treated as one casualty. A dependent's loss belongs
+# on the dependent's own return, as the dependent's income does.
+
+- name: Case 1, a loss of exactly $100 is fully absorbed by the $100 reduction.
+  period: 2017
+  input:
+    casualty_loss: 100
+  output:
+    # max(100 - 100, 0) - 10% x 0
+    casualty_loss_deduction: 0
+
+- name: Case 2, a loss of $101 leaves $1 after the $100 reduction.
+  period: 2017
+  input:
+    casualty_loss: 101
+  output:
+    # max(101 - 100, 0) - 10% x 0
+    casualty_loss_deduction: 1
+
+- name: Case 3, a loss under $100 is not deductible.
+  period: 2017
+  input:
+    casualty_loss: 80
+  output:
+    # max(80 - 100, 0) = 0
+    casualty_loss_deduction: 0
+
+- name: Case 4, the 10 percent floor applies after the $100 reduction.
+  period: 2017
+  input:
+    employment_income: 50_000
+    casualty_loss: 10_000
+  output:
+    # (10,000 - 100) - 10% x 50,000 = 9,900 - 5,000
+    casualty_loss_deduction: 4_900
+
+- name: Case 5, a loss $100 above the floor nets to zero.
+  period: 2017
+  input:
+    employment_income: 50_000
+    casualty_loss: 5_100
+  output:
+    # (5,100 - 100) - 10% x 50,000 = 5,000 - 5,000
+    casualty_loss_deduction: 0
+
+- name: Case 6, a loss $101 above the floor leaves $1.
+  period: 2017
+  input:
+    employment_income: 50_000
+    casualty_loss: 5_101
+  output:
+    # (5,101 - 100) - 10% x 50,000 = 5,001 - 5,000
+    casualty_loss_deduction: 1
+
+- name: Case 7, a joint return reduces the spouses' pooled losses by $100 once.
+  period: 2017
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 30_000
+        casualty_loss: 6_000
+      person2:
+        age: 40
+        employment_income: 20_000
+        casualty_loss: 4_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+  output:
+    filing_status: JOINT
+    # (6,000 + 4,000 - 100) - 10% x 50,000 = 9,900 - 5,000
+    casualty_loss_deduction: 4_900
+
+- name: Case 8, a dependent's loss is left to the dependent's own return.
+  period: 2017
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 50_000
+        casualty_loss: 10_000
+      person2:
+        age: 10
+        casualty_loss: 3_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+  output:
+    is_tax_unit_dependent: [false, true]
+    # The child's 3,000 is not the parent's loss.
+    # (10,000 - 100) - 10% x 50,000 = 9,900 - 5,000
+    casualty_loss_deduction: 4_900
+
+- name: Case 9, a working dependent's loss stays off the parent's return.
+  period: 2017
+  input:
+    people:
+      person1:
+        age: 45
+        employment_income: 60_000
+        casualty_loss: 8_000
+      person2:
+        age: 17
+        employment_income: 4_000
+        casualty_loss: 9_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+  output:
+    is_tax_unit_dependent: [false, true]
+    # The parent's AGI leaves out the dependent's wages, and the parent's loss
+    # leaves out the dependent's loss.
+    # (8,000 - 100) - 10% x 60,000 = 7,900 - 6,000
+    adjusted_gross_income: 60_000
+    casualty_loss_deduction: 1_900
+
+- name: Case 10, the deduction is suspended from 2018.
+  period: 2018
+  input:
+    employment_income: 50_000
+    casualty_loss: 10_000
+  output:
+    casualty_loss_deduction: 0
+
+- name: Case 11, a reform that restores the deduction applies the $100 reduction.
+  period: 2025
+  input:
+    gov.irs.deductions.itemized.casualty.active: true
+    employment_income: 50_000
+    casualty_loss: 10_000
+  output:
+    # (10,000 - 100) - 10% x 50,000 = 9,900 - 5,000
+    casualty_loss_deduction: 4_900
+
+- name: Case 12, a separate return reduces its own loss by $100.
+  period: 2017
+  input:
+    employment_income: 20_000
+    casualty_loss: 5_000
+    filing_status: SEPARATE
+  output:
+    # (5,000 - 100) - 10% x 20,000 = 4,900 - 2,000
+    casualty_loss_deduction: 2_900