Casualty & Disaster Losses: What You Can Actually Deduct

When a storm, fire, or flood damages your property, the tax code can soften the blow — but the rules are far narrower than most people expect, and they changed significantly after 2017. Knowing what actually qualifies before disaster strikes can be the difference between a real deduction and a denied one.

This is general information, not individual tax advice — the right treatment depends on your specific situation.

Personal Losses Now Require a Federally Declared Disaster

For tax years beginning after 2017, a personal casualty or theft loss is deductible only to the extent it is attributable to a federally declared disaster — one the President declares eligible for federal assistance. A burst pipe, a house fire, or a tree falling on your car on an ordinary day, with no federal declaration, generally gets no deduction. This limitation came from the 2017 Tax Cuts and Jobs Act and was scheduled to expire after 2025. The 2025 tax law made it permanent, and — starting in 2026 — expanded eligibility to include certain state-declared disasters as well.

The $100 and 10%-of-AGI Floors

Even when a personal loss qualifies, two reductions apply before you deduct anything. First, you subtract $100 per event. Then you subtract 10% of your adjusted gross income from your total qualifying losses for the year. Only what remains is deductible, as an itemized deduction. On a modest loss with a healthy income, those floors can wipe out the deduction entirely — which is why running the numbers matters before you count on any tax relief.

Business Property Plays by Different Rules

The restrictions above apply to personal-use property. Losses to business or income-producing property are not subject to the federally-declared-disaster requirement, the $100 reduction, or the 10%-of-AGI floor. A business that loses equipment, inventory, or a building to a casualty can generally deduct the loss regardless of any federal declaration, following its own set of rules. For owners who use property for both business and personal purposes, the two portions are figured separately.

You Must Subtract Expected Insurance

A casualty loss is measured after insurance. You must reduce the loss by any reimbursement you receive or reasonably expect to receive — even if the claim has not been paid yet. If you have coverage for the damage, you are generally required to file a timely insurance claim; you cannot skip the claim and deduct the full loss instead. And if reimbursement later exceeds your adjusted basis, you may actually have a taxable gain rather than a loss.

The Prior-Year Election for a Faster Refund

Disaster losses come with a valuable timing option. If your loss is in a federally declared disaster area, you can elect to claim it on the prior year's return — either the original return or an amended one — instead of waiting to file for the disaster year. This often produces a refund sooner, exactly when cash is most needed for recovery. The election is time-sensitive: generally it must be made within six months after the due date of the disaster-year return, so it should be weighed quickly with a tax professional.

Beware Post-Disaster Fraud

Disasters attract scammers. In the aftermath, be wary of "contractors" demanding full payment up front, fake charities soliciting donations, and callers posing as the IRS or FEMA asking for personal or banking information. Verify any charity before you give, get written estimates and contracts, and remember that legitimate agencies will not pressure you for payment or sensitive data over the phone. Fraud losses from these schemes generally are not deductible, so prevention is the only real protection.

How VarStan Helps

Casualty and disaster losses are one of the most fact-specific corners of the tax code — the deduction turns on declarations, basis, insurance, and timing that are easy to get wrong under stress. As a CPA-led firm, we help you determine whether your loss qualifies, calculate it correctly after the floors and reimbursements, decide whether the prior-year election is worth making, and keep the documentation the IRS will expect. If you have been affected by a disaster, a short conversation can help you move quickly and confidently.