When To Claim a Disaster Loss on Your Federal Income Tax

Written by Chase Insogna, CPA | Mar 6, 2023 8:00:41 PM

A disaster loss is an tax-deductible type of loss. It is similar to a casualty loss where taxpayers have suffered a loss in an area that has been declared a federal disaster area by the President. Floods, forest fires and earthquakes can all lead to disaster losses.

Disaster Loss Deductions

The IRS states, "Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return if the loss is caused by a federally declared disaster.

You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement."

Casualty Loss Categories

Here are the three casualty losses categories that refer to federally declared disasters. The requirements for each loss vary, which is outlined in Publication 547 or Form 4684 .

Federal casualty losses,
Disaster losses, and
Qualified disaster losses.

For tax years 2018 through 2025, if you are an individual, losses of personal-use property from fire, storm, shipwreck, or other casualty or theft are deductible only if the loss is attributable to a federally declared disaster (federal casualty loss). Casualty losses are deductible in the year you sustain the loss, which is generally in the year the casualty occurred. You have not sustained a loss if you have a reasonable prospect of recovery through a claim for reimbursement, such as insurance.

Calculating the Casualty Loss Deduction

If you are claiming a deduction based on the property that was destroyed, you will need to calculate the casualty loss by subtracting the salvage value from the adjusted basis of the asset and then subtracting any insurance proceeds from the result.

What is a deductible casualty expense?

Casualty and theft losses are deductible losses that arise from the destruction or loss of a taxpayer's personal property. To be deductible, casualty losses must result from a sudden and unforeseen event. Theft losses generally require proof that the property was actually stolen and not just lost or missing.

Which type of loss is not deductible?

There are several types of losses that would not qualify for a deduction. Those incurred due to:

Long-term processes, such as erosion, drought, decomposition of wood, or termite damage.
Any loss that arises from what the Internal Revenue Agency (IRS) considers to be a "foreseeable" event (one that can be known about or guessed before it happens).

How do I claim disaster loss on my taxes?

To make this election for a loss in a disaster year, complete Part I of Section D on your Form 4684 and attach it to your original or amended return that claims the disaster loss.

Claiming a disaster loss or amending your tax return

If you need further information on disaster losses, your particular options for claiming the loss, or if you wish to amend your return to claim your loss, please give us a call.

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