Which IRS Form Should You Use for Casualty and Theft Losses?

Start by identifying the type of property and whether the loss is personal or business-related. Business and income-producing property (rental, inventory, business equipment) and personal property use the same reporting form (Form 4684), but the tax treatment, limits, and where the amount appears on your return differ.

Key filing rules (short version)

  • Use IRS Form 4684, Casualties and Thefts, to calculate the loss and determine the deductible amount (see IRS Form 4684 instructions: https://www.irs.gov/forms-pubs/about-form-4684).
  • For business or income-producing property, report the result from Form 4684 on the applicable business schedule (Schedule C, Schedule E, or the business return).
  • For personal-use property, the deductible amount from Form 4684 generally flows to Form 1040 (through Schedule 1) — but personal casualty and theft deductions are limited: for tax years 2018–2025 they are deductible only if the loss is attributable to a federally declared disaster (Tax Cuts and Jobs Act; see IRS Publication 547 and Topic No. 515).

How Form 4684 works (practical steps)

  1. Figure the loss: For each item, determine the smaller of (a) your property’s adjusted basis or (b) the decrease in fair market value (FMV) caused by the casualty or theft.
  2. Subtract reimbursements: Reduce the loss by insurance or other reimbursements you actually received or expect to receive.
  3. Apply personal-loss rules if applicable: For personal-use property losses you must subtract $100 for each separate casualty event and then subtract 10% of your adjusted gross income from the total (these thresholds do not apply to business/income-producing property).
  4. Transfer the deductible amount: Enter the result on Form 4684 and carry the deductible amount to Form 1040 via the appropriate schedule.

Examples

  • Homeowner after a storm (personal property): You lost $15,000 in contents, insurance paid $5,000. If the event is not part of a federally declared disaster (2018–2025 rule), you generally cannot deduct the loss on your federal return. If it is a declared disaster, you would calculate: loss ($10,000) − $100 per event − 10% of AGI = deductible amount that flows from Form 4684 to Form 1040 (see IRS Pub 547).

  • Small business inventory stolen: Inventory loss of $5,000 with no insurance. Report on Form 4684, part for business property, and claim the deduction on Schedule C (or other business return) without the $100 and 10%-of-AGI reductions.

Documentation checklist (what I ask clients to gather)

  • Police or insurance reports and claim numbers
  • Photos or videos showing damage or theft
  • Receipts, serial numbers, and purchase records showing basis
  • Statements from insurance carriers (payments, denials, pending amounts)
  • Appraisals, contractor estimates, or repair bills that document FMV changes
  • Date and location of the casualty or theft event

When to file and how to correct mistakes

  • File in the year the loss occurred. If you missed a deductible loss on a prior year return, file Form 1040-X to amend that return (see FinHelp guide: When and How to File Form 1040-X).
  • In federally declared disaster areas, the IRS often provides filing and payment relief — check current IRS disaster relief announcements.

Common pitfalls I see in practice

  • Assuming every loss is deductible: since the 2018 TCJA rules, personal casualty deductions are narrowly limited unless tied to a federal disaster (IRS Publication 547).
  • Poor documentation: without receipts, photos, or police reports the IRS is likely to disallow a claim.
  • Misreporting business vs. personal property: different parts of Form 4684 apply and business losses don’t face the $100/10%-AGI thresholds.

Useful internal resources

Authoritative sources

Professional disclaimer

This article is educational and not personalized tax advice. For a deduction calculation that affects your specific tax return, consult a qualified CPA or tax attorney — I frequently advise clients to review documentation and election options with a tax professional before filing.