Understanding Casualty and Theft Deductions Under TCJA for Federally Declared Disasters

Yes, you may claim an itemized deduction for a personal-use property casualty loss only if the loss is from a federally declared disaster (President’s declaration under section 401 of the Stafford Act) for tax years 2018 through 2025 under the TCJA.

Yes, you may claim a theft loss from certain fraudulent investment schemes if the conditions for a theft loss are met.

Yes, if you have personal casualty gains (for example, from insurance that pays more than your basis), you can offset those gains with losses from events that are not federally declared disasters, up to the amount of the gains.

No, you generally can’t deduct a personal casualty or theft loss that isn’t tied to a federally declared disaster unless you use it only to offset personal casualty gains.

According to analysis by VisaVerge.com, the most common error is trying to claim a non-disaster loss as a stand-alone deduction. The rules now limit personal losses unless tied to an official disaster declaration.

What Counts as a Casualty or Theft for Tax Purposes?

A casualty is damage, destruction, or loss of property from an identifiable event that is sudden, unexpected, or unusual—examples include earthquakes, fires, floods, hurricanes, tornadoes, and terrorist attacks. A theft loss includes criminal taking of property, and in some cases, losses from fraudulent investment schemes may qualify as a theft loss.

You can have multiple losses from a single event. You must complete a separate Form 4684 for each casualty or theft involving personal-use property.

• File gains and losses on Form 4684.
• If itemizing, report on Schedule A:
  • Non-qualified federal disaster losses: line 15 “Casualty and Theft Losses”
  • Net qualified disaster losses: line 16 “Other Itemized Deductions”
• If not itemizing and you have a net qualified disaster loss, you can still claim an increased standard deduction using Schedule A line 16 and report the total on Form 1040/1040-SR line 12. See the “How to Claim” section below for steps.

Disaster Types and How They Affect Your Deduction

There are two Stafford Act declaration types that affect the calculation:

• Emergency declaration (federally declared disaster):
  • Apply the $100 reduction per event
  • Then reduce the total of all such losses by 10% of AGI
• Major disaster declaration treated as a qualified disaster loss:
  • Apply a $500 reduction per event (not $100)
  • No 10% of AGI threshold for these losses
  • A net qualified disaster loss can be added to the standard deduction even if you don’t itemize

Important note: The “qualified disaster loss” expansion includes major disasters declared before February 26, 2021, but does not include declarations only due to COVID-19.

To confirm whether your area was approved for public or individual assistance, check FEMA’s list of current disaster areas at the FEMA Disaster page.

How to Figure Your Loss (and When It’s a Gain)

Your casualty or theft loss for personal-use property is the smaller of:

1. The property’s adjusted basis before the event, or
2. The drop in fair market value (FMV) because of the event,

minus insurance or other reimbursements you received or can reasonably expect to receive.

• If reimbursements exceed your adjusted basis, you have a gain.
• Gains are generally the amount received minus your adjusted basis. Include amounts paid directly to a lender on your behalf.
• If you have a gain, you can:
  • Report it as a capital gain on Schedule D, or
  • Postpone it by acquiring related replacement property within two tax years.

Examples That Clarify Eligibility and Amount

• Mixed events with gains and losses:
  • Camper insured at replacement value → $13,000 gain.
  • Necklace stolen (not in a disaster) → $15,500 loss.
  • Car lost in a federally declared disaster flood → $25,000 loss.
  • First, use the necklace loss to offset the $13,000 gain.
  • Then you may claim the full disaster-related $25,000 casualty loss, subject to the relevant limits.
  • The part of the necklace loss not used to offset the gain isn’t deductible because it wasn’t from a federally declared disaster.
• Non-qualified federal disaster:
  • Tornado (federally declared but not a qualified disaster) destroys cottage → loss after insurance $14,800.
  • Subtract $100 per event → $14,700.
  • Subtract 10% of AGI (AGI $80,000 → 10% = $8,000) → $6,700 deduction.
• When insurance creates a gain:
  • Hurricane destroys home and insurance pays $145,000, including $5,000 paid to the mortgage lender.
  • Total amount received counted is $145,000 (include lender portion); this may create a gain if it exceeds your basis.

Disqualifying Factors That Lead to a “No”

You generally cannot deduct a personal casualty or theft loss if any of these apply:

• Losses not tied to a federally declared disaster (except to offset personal casualty gains).
• Losses you expect insurance or other reimbursement to cover (until you know you won’t be fully repaid).
• Losses that don’t meet the “sudden, unexpected, or unusual” test.
• For standard federal disaster losses (not qualified disasters), total losses that don’t exceed the $100 per-event reduction and the 10% of AGI threshold after combining all events.

Claiming the Deduction: Step-by-Step

1. Complete a separate Form 4684 for each casualty or theft event involving personal-use property.
2. Figure loss or gain for each event after insurance or other reimbursements.
3. Apply the correct per-event reduction:
   • $100 for emergency declarations
   • $500 for qualified disaster losses
4. Combine totals and apply the 10% of AGI test unless you have a net qualified disaster loss.
5. Report on Schedule A:
   • Line 15 for disaster losses that are not qualified disaster losses
   • Line 16 for net qualified disaster losses as “Other Itemized Deductions”
6. If you’re not itemizing and you have a net qualified disaster loss, you can still claim an increased standard deduction by:
   • Entering the amount from Form 4684, line 15, on the dotted line next to Schedule A line 16 with “Net Qualified Disaster Loss”.
   • Entering the standard deduction amount on that dotted line with “Standard Deduction Claimed With Qualified Disaster Loss”.
   • Combining both amounts on Schedule A line 16 and then onto Form 1040/1040-SR line 12.

You may wish to review the current IRS instructions for Schedule A and Form 1040/1040-SR on the IRS site.

Choosing the Tax Year: Special Election

You can deduct a casualty loss from a federally declared disaster either:

• In the year the loss is sustained (the “disaster year”), or
• Elect to deduct it on the return for the year before the disaster year if the area was approved for public or individual assistance.

• If you had a reasonable chance of full reimbursement, you don’t sustain the loss until it becomes clear you won’t be fully reimbursed.

• Example: Flood damage in December 2022 with a claim settled in January 2023 for only half the loss → disaster year is 2023. You can deduct the unreimbursed portion on your 2023 return or elect to claim it on your 2022 return.

Election deadline: To deduct a 2023 disaster loss on your 2022 return, complete Part I of Section D on the 2022 Form 4684 and file it with your original or amended 2022 return by October 15, 2024 (for calendar-year filers). Missing this deadline closes this option.

Alternatives if You Don’t Qualify

• Use the exception for personal casualty gains: offset personal casualty gains with non-disaster personal casualty losses up to the gain amount. Any remaining gain can then be reduced by federally declared disaster losses.
• If you have a gain, consider the replacement rule to postpone reporting it by acquiring related replacement property within two tax years.
• A theft loss from certain fraudulent investment schemes may qualify; review the theft loss rules on Form 4684.

Tips to Improve Your Chances of a Deduction

• Confirm the disaster type using FEMA’s list to know whether the $100 and 10% of AGI rules apply or the $500 qualified disaster rule applies.
• Keep thorough records:
  • Photos and repair estimates
  • Appraisals showing the decrease in FMV
  • Proof of adjusted basis
  • All insurance claims and payouts
• File a separate Form 4684 for each event; mixing events on one form can cause mistakes.
• Check whether claiming the loss in the prior year could produce a better tax result, especially if it creates or increases a refund.
• If insured, wait until it’s reasonably certain how much you’ll be reimbursed; otherwise, your disaster year may shift.

Common Questions

• Can I claim a loss if I don’t itemize?
  Only if it’s a net qualified disaster loss—you can add it to the standard deduction using Schedule A line 16 and then carry the total to Form 1040/1040-SR line 12.

• Can I deduct a loss from a local storm that wasn’t a federally declared disaster?
  Not as a stand-alone deduction for personal-use property. You can only use that loss to offset personal casualty gains.

• Are COVID-19 disaster declarations treated as qualified disaster losses?
  No—major disaster declarations that were issued only because of COVID-19 do not count as qualified disaster losses.

For official disaster declarations that allow a claim in the prior year, check FEMA’s list at the FEMA Disaster page.