A casualty or theft loss is allowed only if the property is located within an area officially declared a federal disaster area. All emergency and major disaster declarations are made solely at the discretion of the President of the United States as provided by the Robert T. Stafford Disaster Relief and Recovery Act.
In order to claim a loss for personal-use property (like a home), the loss is reduced by a $100 deductible and 10% of your adjusted gross income. Any loss is reduced by insurance proceeds. Another nuance is you must file a timely insurance claim if you have coverage. You cannot pass on filing an insurance claim and take a casualty loss for the entire amount.
The loss is generally deductible in the year the casualty occurs—not when the damage is repaired. If your loss occurs in an area declared a Federal Disaster, the deduction can be taken on the current or prior year return. Claiming a loss can be tricky and imprecise as you might have to estimate the insurance recovery and file a return based on the remaining loss. For example, if your property was damaged in a 2024 federally declared disaster area but expects to be fully reimbursed for the loss by insurance in 2025, do not take a deduction on your 2024 return.
Also, gather as much documentation as possible, such as insurance reports, pictures, etc.
Planning Tip:
A loss of business-use property is filed and reported differently than personal property. Business losses are not subject to federal disaster area rules.
Complete Itemized Dedication Series
This series is intended to cover the most common deductions. Please keep in mind that there are always exceptions; what’s more, your situation or facts may be different from someone else. We recommend that you consult with your tax advisor before taking any action.
Part 1: The Basics
Part 2: Deductions and Medical Expenses
Part 3: Deduction for Taxes
Part 4: Deducting Mortgage Interest & Investment Interest
Part 5: Contributions & Charitable Giving
Part 6: Casualty & Theft Losses
