Casualty Loss Tax Deduction in 2026: Who Qualifies, the $100 and 10% Floors, and Form 4684

What is the casualty loss tax deduction?

The casualty loss tax deduction lets you deduct damage to your personal property from a sudden, unexpected, unusual event, such as a hurricane, wildfire, flood, or tornado, but only after insurance and two built-in reductions: $100 per event and 10% of your adjusted gross income (AGI).

That is the definition. The practical question is whether your loss survives the filters, and most do not. This guide walks through the filters in the order the IRS applies them, so you can estimate your deduction before you hire anyone.

A casualty, in tax language, is damage, destruction, or loss from an identifiable event that is sudden, unexpected, or unusual. A storm that tears your roof off qualifies. Termites that ate your siding over five years do not, because the damage was gradual. A car you wrecked through a careless left turn is not a casualty either, since the IRS looks for something other than your own willful act or willful negligence.

My read: the deduction is more useful as a floor on how bad the year was than as a refund generator. If a hurricane costs you $60,000 and your insurer covers $55,000, the deduction is mostly zero. It earns its keep when the uninsured gap is large relative to your income.

Does the loss have to come from a federally declared disaster?

For personal-use property, yes through tax year 2025, and from 2026 forward the rule is widened to include certain state-declared disasters.

Here is the timeline, using the IRS’s own pages as the source:

Tax years	Rule for personal-use property	Source
Before 2018	Any casualty qualified, subject to the floors	Prior law
2018 through 2025	Only losses from a federally declared disaster	IRS Publication 547
2026 and later	Federally declared disasters, plus certain state-declared disasters, with the limit made permanent	IRS notice on the expanded, permanent deduction

The 2017 tax law (the Tax Cuts and Jobs Act) imposed the federal-disaster-only limit as a temporary measure for 2018 through 2025. The 2025 tax law, the One Big Beautiful Bill Act (Public Law 119-21), removed the expiration date. Anyone who was waiting for the old rule to “come back” after 2025 will be disappointed. It did not sunset.

What did change in 2026 is the extra door. Starting with the 2026 tax year, a personal casualty loss from a state-declared disaster can also qualify. The IRS describes this as subject to the same $100 and 10% of AGI limits. Check the exact statutory conditions for a state declaration with the IRS page above or a tax professional, because not every governor’s emergency order will meet them.

How do you know whether your event counts? Look up the declaration on the FEMA disaster declarations page. The entry shows the DR or EM number you will need on Form 4684 and the counties that are designated. A declaration that covers your county is the gate for the federal route.

A note on timing. This post reflects the IRS pages as of October 2026. The 2025 Publication 547 and the 2025 Form 4684 instructions still describe the federal-only rule, because they cover the 2025 tax year. For 2026 filings, rely on the “expanded and made permanent” IRS page and the forms IRS releases for 2026.

How do the $100 and 10%-of-AGI floors work?

You subtract your insurance recovery first, then $100 for each separate casualty event, then 10% of your AGI from the total of the year’s personal casualty losses, and only the remainder is deductible.

Two details trip people up. The $100 applies per event, not per damaged item. If a single storm wrecks your roof, fence, and shed, that is one event and one $100. The 10% of AGI cut, by contrast, applies once to the combined total of all your personal casualty and theft losses for the year, after each loss has had its own $100 reduction.

Here is a worked example. Treat it as a composite, not a real taxpayer:

Step	Amount
Uninsured loss after insurance reimbursement	$40,000
Less $100 per-event reduction	$39,900
AGI for the year	$90,000
Less 10% of AGI	$9,000
Deductible casualty loss	$30,900

That $30,900 goes on Schedule A as an itemized deduction. If you were already close to the standard deduction, it likely tips you over. If your other itemized deductions are tiny, the benefit is the amount by which $30,900 plus your other itemized items exceeds your standard deduction, not the full $30,900.

Now the same loss for a higher earner. At $250,000 of AGI, the 10% cut is $25,000, so a $40,000 uninsured loss leaves only about $14,900 deductible, and the tax saving at a 24% bracket would be roughly $3,600 in this illustration. The lesson: the deduction shrinks fast as income rises, and the people with the least cushion are often middle-income homeowners whose loss is large against modest AGI.

There is a special lane called a “qualified disaster loss.” When the President declares a qualified disaster, the floor changes to $500 per casualty and the 10% of AGI reduction does not apply. State-declared disasters do not get that treatment. If you suspect your event is a qualified disaster, confirm on the IRS disaster-relief pages for that specific event rather than assuming.

How do you measure the size of the loss?

For property you own personally, the loss is generally the smaller of your adjusted basis or the drop in fair market value, reduced by any insurance or other reimbursement.

Basis is roughly what you paid plus capital improvements, less depreciation if any. Fair market value change is the value of the property right before the event minus its value right after. For a house, a qualified appraiser’s before-and-after valuation is the textbook method, but the IRS also allows the cost of repairs as evidence of the decline when the repairs only restore the property to its prior condition and are not excessive.

Property type	Common evidence	Watch out for
House	Appraisal before and after, repair invoices, photos	Repairs that upgrade the property are not loss
Car	Clean retail value before and after, towing and salvage records	Insurance payout often equals the value
Personal belongings	Itemized inventory, receipts, photos, replacement estimates	Value is used, not new, price
Trees and landscaping	Appraisal showing the value drop to the whole property	Cleanup cost alone is generally not the loss

A distinction worth knowing: the loss is measured per item for most personal property, not as a lump sum across a household. Your insurer’s contents worksheet is a useful starting point, but the tax rule starts from basis, not replacement cost.

What helps most is the habit of documenting early. Photograph everything before you clean up, keep a folder with the FEMA declaration, the claim letters, the contractor bids, and every receipt. Several of the posts on this site about flood insurance cost and earthquake coverage show how gaps between a policy and the real loss arise, and those gaps are precisely what this deduction partly addresses.

Which year do you deduct it, and can you claim it on last year’s return?

A casualty loss is generally deducted in the year it happened, but for federally declared disasters you can elect to claim it on the prior year’s return.

The election matters if the disaster hit in, say, November 2026 and your 2025 income was much lower or your refund would arrive faster. You can make the election on an original 2025 return you have not yet filed, or by amending a return already filed. The election also has a time limit, generally six months after the due date (without extensions) of the return for the year the disaster happened. Publication 547 spells out the exact rule, so read that section before you commit.

Why would you do it? Two reasons come up. First, cash flow: an amended 2025 return can produce a refund months before you could file the 2026 return. Second, AGI: if 2025 AGI was lower than 2026 AGI, the 10% floor is smaller in the earlier year, which leaves a larger deduction.

Why might you not? If the prior-year AGI was higher or you took the standard deduction both years and the loss is modest, switching years buys nothing. Also, once you elect the prior year, you generally cannot just flip back, so run both numbers first.

If your property was condemned, destroyed, or damaged and you are taking insurance proceeds that exceed your basis, you could owe tax instead of getting a deduction. That is a separate topic covered in our guide to involuntary conversions and Section 1033.

How do you report it on Form 4684?

You complete Form 4684, enter the FEMA declaration number if the event is a federally declared disaster, and carry the result to Schedule A.

The sequence that works in practice:

1. Confirm the declaration. Find the DR or EM number for your county on FEMA’s site and write it down.
2. Gather values. For each damaged item or property, list basis, value before, value after, and insurance received or expected.
3. Complete Section A of Form 4684 for personal-use property. Each casualty event gets its own column or copy as the form directs.
4. Apply the $100 and 10% steps as the form walks you through them. The software and the instructions do the math, but check that $100 was subtracted once per event, not once per item.
5. Carry the result to Schedule A, the line for casualty and theft losses from federally declared disasters, and file with Form 1040.
6. Keep the file for at least three years after filing. If you used a prior-year election, keep the election documents as well.

The official Instructions for Form 4684 list the lines. The current posted version is for tax year 2025, so when you file a 2026 return, use the 2026 edition of the form and instructions when they are released.

Business or income-producing property goes through a different part of the form, and the $100 and 10% floors do not apply to it the same way. If you rent out a home or the damaged item is a business asset, the rules differ, and it is worth a professional’s hour.

What about insurance claims and personal casualty gains?

Insurance comes off first, and if you have a reasonable prospect of being reimbursed, you cannot deduct that portion yet.

Suppose a tornado damages your home in October, your insurer has accepted coverage but not paid, and you expect most of the loss back. The part you expect to recover is not deductible until you know whether it will be paid. If the claim settles in 2027 for less than you assumed, the shortfall is deductible then, subject to the usual rules.

Another wrinkle is personal casualty gains. If your insurance payout exceeds your basis in a destroyed item, the excess is a gain. Under the rules the IRS publishes, you net your personal casualty gains against personal casualty losses. If you have gains, losses that are not from a federally declared disaster can offset them first, and any remaining gain then reduces your disaster losses. This sounds obscure until you own an old house whose insurance policy pays replacement value on a low-basis structure.

Two common situations:

Situation	What usually happens
Insurance pays more than your basis	Casualty gain, possibly taxable, though replacing the property can defer it
Insurance denied or capped below the real loss	The uninsured piece is a potential deduction, after the floors
You choose not to file an available claim	The IRS disallows the part you could have recovered

That last row matters. You cannot skip a valid insurance claim just to save your premium history and then deduct the loss. The regulations expect you to pursue the claim.

Disputes with an insurer are common after catastrophes. If yours is stalling or lowballing, a look at the California wildfire insurance claim dispute guide shows what an escalation path looks like, and the FAIR Plan non-renewal article covers the coverage side.

What mistakes cost people the deduction?

The most common ones are claiming gradual damage, skipping the declaration check, deducting insurance-covered amounts, and forgetting that you must itemize.

Here is a composite scenario, not a real client. A homeowner in a county hit by a hurricane lost a fence and part of a deck, spent about $18,000 on repairs, received $12,500 from insurance, and had $98,000 of AGI. She assumed she could deduct the $5,500 gap. The math: $5,500 minus $100 is $5,400, and 10% of $98,000 is $9,800, which wipes out the entire loss. Nothing was deductible. She had also paid a contractor for upgrades beyond restoration, which would not have counted anyway.

The cost of misunderstanding was not a penalty. It was a wasted afternoon, and a mistaken expectation that fed a bad financial plan. Run the numbers on the two floors before you plan around the deduction.

Other mistakes:

• No declaration. A fire that started in your kitchen is not a federal disaster. Without a declaration, a personal-use loss generally does not qualify, so the answer depends on the insurer, not the IRS.
• Gradual damage. Rot, rust, corrosion, and pest damage over time are not sudden events.
• Deducting the full cost to replace. The measure is basis or value drop, whichever is smaller, not what a new item costs.
• Using the wrong form year. Pull the right-year form; the 2025 version still describes the federal-only rule.
• Ignoring the 10%. Most of the surprise comes from here.

Should you itemize, and what else helps after a disaster?

You should itemize only if the casualty loss plus your other itemized deductions beat your standard deduction, and you should also check non-deduction relief, which is often bigger.

Compare, line by line: mortgage interest, state and local taxes up to the cap, charitable gifts, medical expenses above their threshold, and now the casualty loss. If the total is close to the standard deduction, even a modest casualty loss can matter. If you are far below it, the deduction yields nothing, and you should say so to yourself plainly.

Beyond the deduction, these are often worth more:

Relief	What it does
Deadline postponement	The IRS often postpones filing and payment dates in declared disaster areas
Replacement-cost insurance and FEMA aid	Real cash, unlike a deduction that only reduces taxable income
Property tax reassessment	Local relief for damaged homes can cut your bill, see the property tax reduction guide
Early retirement account access	Certain disaster distributions can avoid the usual penalty; check the IRS disaster page for your event
Charitable and other deductions	See the qualified charitable distribution article if you give from an IRA

If your tax picture has other moving parts, such as selling investments to cover repairs, the capital gains tax guide shows how that interacts with your bracket. Where the numbers are large or the facts are messy, pay a CPA or enrolled agent to prepare Form 4684. An hour of professional time is cheap relative to a loss in the five or six figures.

One last point of view, since most guides skip it. Do the tax math after you settle the insurance claim, not before. The deduction responds to what you actually lose, and until the claim is closed, you are modeling a number that will change.

This article gives general information about U.S. federal tax rules as of October 2026 and is not tax advice. Rules for 2026 returns depend on final IRS forms and guidance, and state tax treatment differs. Consult a qualified tax professional about your situation.