A casualty loss occurs when there is property damage from a sudden, unanticipated event; not from gradual, progressive damage. Examples of events qualifying as a casualty include: acts of nature like hurricanes, tornadoes, floods, storms, and volcanic eruptions; shipwrecks; sonic booms; vandalism; fires; car accidents; theft; and terrorist attacks.
For years 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) has suspended the itemized deduction for personal and theft losses. Prior to this change in law, personal casualty or theft losses were only deductible to the extent that they exceeded $100 per casualty of theft event. In addition, the aggregate net casualty and theft losses for the year were deductible by those who itemized their deductions but only to the extent that the loss exceeded 10 percent of an individual’s adjusted gross income (AGI).
The Act did, however, retain a deduction for qualified disaster-related personal casualty losses for years 2018 through 2025. A qualified disaster-related personal casualty loss is one that occurs in a presidentially-declared disaster area and is result of the disaster.
For example, if your home was destroyed by a hurricane within an area the president has declared to be a disaster area and you have a casualty loss, you are able to deduct the loss. However, if your home is destroyed by a fire that was not in a disaster area (say, due to a fire that started in your kitchen when cooking), you cannot claim a casualty loss, even though your loss would be as great as that of the individual residing in a disaster zone.
In light of these changes, you may not qualify for any tax relief as the result of a casualty, and you are cautioned to review your risks for a casualty and your insurance coverage, should you be unfortunate enough to incur a non-deductible casualty loss.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or email@example.com.