Overview

Recent federal disaster law changes and ongoing IRS disaster guidance aim to make casualty-loss relief faster and clearer for victims. The Tax Cuts and Jobs Act (TCJA) of 2017 narrowed the availability of personal casualty-loss deductions, permitting them only for losses attributable to federally declared disasters. Since then, the IRS has used administrative guidance and temporary relief measures following specific disasters to streamline claims and give taxpayers options (for example, electing to claim a loss on the prior year return). Key IRS sources include Publication 547 and Tax Topic 515 (IRS).

In my practice working with disaster-impacted taxpayers, the two most important realities are: 1) whether the loss occurred in a federally declared disaster area and 2) careful documentation. If both are present, taxpayers can often recover more quickly — including by electing to claim the loss on the prior year return for a faster refund.

Sources: IRS Publication 547 — Casualties, Disasters, and Thefts (https://www.irs.gov/pub/irs-pdf/p547.pdf); IRS Tax Topic 515 — Casualty, Disaster, and Theft Losses (https://www.irs.gov/taxtopics/tc515).

What changed — and what stayed the same

  • TCJA effect (2018–2025): Personal casualty and theft loss deductions are limited to losses in federally declared disaster areas. That means a casualty loss from an event that is not part of a federal disaster declaration is not deductible on your federal return for the tax years the TCJA rules apply, unless Congress changes the law.
  • Unchanged mechanics: For qualifying casualty losses to individuals (personal-use property), you still calculate loss per event, reduce by any insurance or other reimbursement, subtract $100 for each casualty event, then reduce the total by 10% of your adjusted gross income (AGI). These computation steps remain in IRS Publication 547 and Tax Topic 515.
  • Business and income-producing property: Different rules apply. Casualty losses on business or rental property are generally deductible on the business tax return or as an ordinary loss and are not subject to the $100-per-event and 10% of AGI floors that apply to personal losses. If you own rental property or a sole proprietorship, losses are usually treated under business rules.

Who qualifies?

  • Individuals and families whose property damage or loss occurred in a federally declared disaster area may qualify for the personal casualty-loss deduction (TCJA limitation).
  • Homeowners, renters (for personal possessions), and small business owners with damage to business property located in the declared area should review both personal and business deduction rules.
  • If your primary or secondary residence, household contents, vehicle, or other personal property was damaged or destroyed during the disaster and you have unreimbursed losses that exceed the statutory thresholds, you may be eligible.

Tip: Confirm whether your county or parish was included in the federal disaster declaration. The FEMA and IRS disaster pages list included counties.

How to calculate a casualty loss (practical steps)

  1. Establish the casualty and location: Confirm the event qualifies (sudden, unexpected, or unusual) and that it’s part of a federally declared disaster if you are claiming a personal loss (see IRS disaster pages).
  2. Determine the property’s value before and after the casualty: For each damaged item (house, contents, vehicle), determine fair market value immediately before and after the event. For homes, this is typically the market value, not replacement cost.
  3. Compute loss per item: Loss = lesser of (adjusted basis or decrease in FMV) — insurance reimbursement. For personal property, you usually use the decrease in fair market value but cannot deduct more than your adjusted basis.
  4. Reduce by $100 per casualty event (personal losses): Subtract $100 for each casualty occurrence from the total personal loss amount (IRS Pub. 547).
  5. Apply the 10% AGI floor (personal losses): Subtract 10% of your AGI from the remaining total; the remainder is the deductible amount that flows to Schedule A (itemized deductions).

For business or rental property, compute the loss and claim it on the appropriate business return. Business casualty losses do not go through the 10% of AGI personal-floor computation.

IRS forms and filings: Use Form 4684 (Casualties and Thefts) to calculate and report casualty losses. Include the result on Schedule A for personal casualty losses or report on the business return as appropriate. See IRS Publication 547 and Tax Topic 515 for line-by-line guidance.

Relevant internal guidance: Review our explainer on Deductible Losses: Casualty, Theft, and Disaster Claims Explained for additional examples and form walkthroughs: https://finhelp.io/glossary/deductible-losses-casualty-theft-and-disaster-claims-explained/.

Election to deduct in the prior year (fast refund option)

Under current disaster relief rules, if your loss occurred in a federally declared disaster, you may be able to elect to deduct the loss on the prior year return (IRC §165(i); see IRS guidance). That election lets you amend or file the prior year return to claim the loss and potentially get a quicker refund rather than waiting until you file the current year return. The IRS provides specific instructions on how and where to make this election — generally via Form 4684 and a statement attached to the return. Check IRS disaster relief announcements for any event-specific instructions and deadline extensions.

Documentation and recordkeeping — what I always recommend

  • Take photos and video immediately, showing dates and visible damage.
  • Keep receipts for emergency repairs, contractor estimates, replacement purchases, and temporary housing.
  • Maintain records of insurance claims, correspondence, settlement checks, and FEMA or state assistance.
  • Keep property valuation evidence: appraisals, pre-disaster photos, recent sales of comparable homes.
  • Use a consistent inventory spreadsheet for contents with approximate values and purchase dates.

For broader tips on organizing tax records after a disaster, see our guide: Top Tax Recordkeeping Practices to Speed Up Refunds and Audits — https://finhelp.io/glossary/top-tax-recordkeeping-practices-to-speed-up-refunds-and-audits/.

Common mistakes and misconceptions

  • Mistaking insurance proceeds: Insurance and disaster grants typically reduce your deductible loss; you cannot deduct amounts reimbursed.
  • Missing the federal-declared-disaster requirement: Because of the TCJA limitation, many taxpayers assume any disaster loss is deductible — that’s not true. Confirm the federal declaration.
  • Forgetting the $100 and 10% AGI reductions (for personal losses).
  • Reporting loss incorrectly: Use Form 4684 and Schedule A (personal) or the appropriate business return; misfiling delays or disallows deductions.
  • Failing to elect prior-year treatment when beneficial: If speed matters and you qualify, the §165(i) election can materially accelerate refunds.

Example (simplified)

Jane owns a home in County X, which was included in a federal disaster declaration after a hurricane. Her home’s fair market value fell by $50,000 after the storm, and she received $10,000 from her insurer. Her adjusted basis in the damaged property is higher than the loss. Calculation:

  • Loss before reductions = $50,000 − $10,000 = $40,000
  • Subtract $100 per event: $40,000 − $100 = $39,900
  • Subtract 10% of AGI (assume AGI is $80,000 → 10% = $8,000): $39,900 − $8,000 = $31,900 deductible casualty loss. That amount is reported on Form 4684 and flows to Schedule A.

If Jane instead owned a rental property used for income, the loss would be calculated and claimed on the rental schedule (and possibly treated as an ordinary loss), which often produces a different tax outcome without the 10% AGI floor.

When to consult a tax professional

If you have a large claim, disputes with insurers, mixed-use properties (part personal, part business), or uncertain valuation issues, consult a CPA or tax attorney. In my experience, complex casualty claims benefit from professional preparation — especially when you plan to elect prior-year treatment or when state and federal disaster assistance overlap.

Official resources and next steps

Also review our site’s IRS-focused explainer for quick reference: IRS Tax Topic 515 (Casualty, Disaster, and Theft Losses) — https://finhelp.io/glossary/irs-tax-topic-515-casualty-disaster-and-theft-losses/.

Professional disclaimer

This article is educational and does not replace personalized tax advice. Tax rules change and your facts matter. Consult a qualified tax professional to apply these rules to your situation.

Related reading on FinHelp

By confirming federal-declared status, documenting damage thoroughly, and understanding the calculation steps, you’ll be better positioned to claim deductible casualty losses and move the recovery process forward efficiently.