Overview

Deductible losses from casualty, theft, and disasters let taxpayers recover some of the economic harm caused by sudden damage, loss, or theft of property. Post‑2017 tax law tightened the rules for personal casualty and theft losses: currently, personal losses are deductible only if they are attributable to a federally declared disaster. Business and income‑producing property losses remain deductible under the usual rules.

This article explains how losses are calculated, who is eligible, how to report them, and practical documentation and timing tips. For the IRS’s baseline guidance, see IRS Topic No. 515 and Publication 547 (Casualties, Disasters, and Thefts) for the latest forms and examples (irs.gov).

Source references: IRS Topic No. 515 and IRS Publication 547 (see links below).

Key rules at a glance

  • Personal casualty and theft losses: deductible only to the extent they are attributable to a federally declared disaster (Tax Cuts and Jobs Act change effective 2018 through tax year 2025). When allowed, reduce each casualty loss by $100 and the total by 10% of AGI; itemize deductions on Schedule A to claim.
  • Business or income‑producing property: losses generally deductible against business or investment income without the $100 and 10% AGI personal limits. Report these on Form 4684 and then on the appropriate business return or Schedule E, C, or F.
  • Reporting form: Form 4684 (Casualties and Thefts) is used to compute the loss; results flow to Schedule A (personal) or the business tax forms.
  • Special election: For federally declared disaster losses, taxpayers may elect to treat the loss as occurring in the prior tax year to speed refunds (see IRS guidance and Publication 547).

(Authoritative IRS references: IRS Topic No. 515 and Publication 547.)

How the math works: step‑by‑step

  1. Determine the property’s adjusted basis. This is usually what you paid plus capital improvements, minus allowed depreciation. If you are unsure of basis for a home or rental, see our guide on calculating basis (internal link).

  2. Measure the loss in one of two ways:

  • For business/income property: loss generally equals the adjusted basis of the property (reduced for insurance or salvage), or the decrease in FMV if the property is not completely destroyed — reported on Form 4684.
  • For personal property: use the lesser of the adjusted basis or the decrease in fair market value (FMV) caused by the casualty.

  1. Subtract any insurance or other reimbursement you received or expect to receive.

  2. For personal losses that qualify (federally declared disaster): apply the $100 floor per casualty — subtract $100 — then subtract the sum of losses reduced by $100 from your AGI by 10% (the 10%-of-AGI rule). The remainder is the deductible amount reported on Schedule A.

Example — personal residence in a federally declared disaster:

  • Adjusted basis / loss value: $50,000 decrease in FMV
  • Insurance reimbursement: $20,000
  • Net loss before floors: $30,000
  • Subtract $100: $29,900
  • Taxpayer AGI: $80,000; 10% of AGI = $8,000
  • Deductible loss: $29,900 − $8,000 = $21,900

Example — rental (income) property flood loss (business rules apply):

  • Adjusted basis: $200,000
  • Insurance paid: $150,000
  • Deductible business loss: $50,000 (no $100 or 10% AGI reduction). That amount would be reported on Form 4684 and flow to Schedule E or the rental schedule.

Who can claim these losses?

  • Individuals who itemize and who suffered losses in federally declared disaster areas (personal losses only).
  • Owners of businesses, rental properties, and other income‑producing property — generally able to claim casualty and theft losses on business returns or Schedule E without the personal limitations.
  • Victims of theft who have unreimbursed losses; business thefts are treated under business rules while personal thefts follow the disaster limitation if not reimbursed and attributable to a federal disaster.

If you are unsure whether your loss qualifies as attributable to a federal disaster, check the FEMA or IRS disaster declarations list and consult IRS guidance on disaster losses.

Timing and reporting tips

  • Report losses in the year the casualty occurred. For federally declared disasters you can elect to claim the loss in the preceding tax year — this often speeds refunds for taxpayers hit early in the year.
  • Use Form 4684 to compute the amount. Attach Form 4684 and the supporting documentation to your return (or amended return if you elect prior‑year treatment).
  • Maintain documentation: photos, repair estimates, receipts for improvements, police reports for thefts, insurance claim files and correspondence. In my practice, thorough documentation typically prevents IRS questions and makes amended returns or loss elections much smoother.

Useful internal guides: see FinHelp’s page on IRS Tax Topic 515 for background and our itemize-vs-standard deduction guide to help decide if it’s worth claiming the loss (internal links below).

Documentation checklist

  • Inventory of damaged or stolen items (description, date purchased, cost, adjusted basis)
  • Photos or videos of damage
  • Insurance claim paperwork and correspondence
  • Repair estimates, contractor invoices, or demolition receipts
  • Police reports (for theft or vandalism)
  • FEMA or federal disaster declaration documentation if applicable
  • Records showing how you computed basis (closing statements, receipts for major improvements)

Keep these records for at least three years after filing, or longer if you file amended returns or have unresolved claims.

Common pitfalls and how to avoid them

  • Confusing market value with adjusted basis. Taxes use basis for many casualty calculations; don’t overstate loss.
  • Failing to reduce the loss by expected insurance proceeds. If you expect reimbursement, you must reduce the loss even if payment is delayed.
  • Claiming personal casualty losses that are not tied to a federal declaration. Since the TCJA change, most personal claims are disallowed unless the loss is from a declared disaster.
  • Not keeping contemporaneous documentation. Photographs, police reports, and contractor estimates created soon after the event carry more weight.

Special election to claim a disaster loss in the prior year

If your loss is from a federally declared disaster, you can generally elect to deduct the loss on the prior year’s tax return (IRC §165(i)). Practically, you either file an amended return for the prior year or follow the IRS guidance on making the election. This is commonly used to accelerate refunds and cash flow after a disaster. See IRS Publication 547 and Topic No. 515 for the precise steps and deadlines.

When to call a professional

If your loss is large, involves business property, or includes complex insurance settlements, consult a tax professional. In my experience, common areas where a preparer adds immediate value include:

  • Correctly computing adjusted basis after depreciation and improvements
  • Determining whether a loss qualifies as attributable to a federal disaster
  • Making the prior‑year election correctly
  • Preparing documentation and position memos in case of IRS questions

Related FinHelp resources

Authoritative sources & further reading

Professional disclaimer: This article explains federal tax rules as of 2025 for educational purposes and is not individualized tax advice. Tax law can change; consult a qualified tax advisor or CPA for guidance tailored to your situation.

Author note: In my practice advising disaster‑impacted taxpayers, the most reliable path to a smooth claim has been meticulous documentation and early coordination with insurers and tax preparers. Getting the math right — basis, insurance offsets, and the $100/10% adjustments — often makes the difference between an accepted deduction and an audit question.