If you lost property to a fire, flood, hurricane, tornado, or theft, you may be able to deduct that loss on your federal return — and the rules just changed significantly in your favour.
Beginning in 2026, the casualty loss deduction is no longer limited to federally declared disasters. According to the IRS, the deduction was made permanent under the One Big Beautiful Bill Act and its scope now expands to cover losses resulting from state-declared disasters, provided the other requirements of Internal Revenue Code section 165 are met.
That matters because many severe events — floods, wildfires, tornadoes, straight-line wind storms — receive state declarations but never reach the threshold for a federal one. Those losses were simply not deductible before. Now they can be.
Who Qualifies
| Requirement | Detail |
|---|---|
| Type of event | Sudden, unexpected, or unusual — fire, flood, hurricane, tornado, earthquake, theft, vandalism |
| Declaration | Federally or state-declared disaster area (the 2026 change) |
| Property | Personal-use property — home, vehicle, personal belongings |
| Ownership | Renters may claim their own contents, not the structure |
Progressive deterioration does not qualify. Rust, rot, termite damage, and drought are excluded because they are not sudden.
Two Sets of Rules — and the Difference Is Enormous
This is the part most articles get wrong, and getting it wrong costs real money. IRS Topic 515 sets out two different treatments:
| General personal casualty loss | Qualified disaster loss | |
|---|---|---|
| Per-event reduction | $100 | $500 |
| AGI reduction | 10% of your adjusted gross income | None |
| Must you itemize? | Yes — claimed on Schedule A | No — you may elect to deduct without itemizing |
Work an example. Say you have $10,000 of loss remaining after insurance, and an adjusted gross income of $80,000.
- General rule: $10,000 − $100 − $8,000 (10% of AGI) = $1,900 deductible, and only if you itemize.
- Qualified disaster loss: $10,000 − $500 = $9,500 deductible, with no AGI reduction, and available even if you take the standard deduction.
Same loss, same person, a difference of $7,600 in what you can deduct. Before you calculate anything, establish which set of rules applies to your event — and because that determination depends on how the disaster was declared and on election choices with timing consequences, this is a genuinely good moment to involve a tax professional.
How to Calculate the Loss Itself
Before either set of floors is applied, you calculate the loss:
- Take the lesser of your adjusted basis in the property (generally what you paid, adjusted for improvements) or the decrease in fair market value caused by the event.
- Subtract any insurance or other reimbursement you received or reasonably expect to receive.
- Apply the relevant per-event reduction — $100 or $500.
- Apply the 10% AGI reduction, if the general rule applies to you.
Note step two carefully: you must subtract reimbursement you expect, not only what has already arrived. Filing before your claim settles does not let you deduct the part the insurer will eventually pay.
The Documentation Problem
Here is what most people do not think about until it is too late: to claim a casualty loss you must prove what you owned and what it was worth.
The IRS expects documentation of what was lost, its original cost or adjusted basis, its fair market value immediately before the event, its value immediately after, and any insurance reimbursement. For a house full of furniture, electronics, clothing, and appliances, that is an enormous amount of evidence — and most people discover after a disaster that they cannot produce it.
Purchase receipts are the strongest single form of proof, because one document establishes both that you owned the item and what you paid. Bank and card statements corroborate but do not identify what was bought — the gap we cover in bank statements versus receipts. If your records are already gone, what happens when you have no receipts explains what can and cannot be reconstructed.
Filing
Casualty losses are reported on Form 4684, Casualties and Thefts, and carried to Schedule A unless you qualify for and elect the treatment that does not require itemizing. For losses in a federally declared disaster area you may also elect to deduct the loss in the prior tax year, which can accelerate a refund when you need cash quickly. Election rules and deadlines are specific — check current IRS guidance for your event.
Prepare Before, Not After
The time to build documentation is before you need it, not while standing in what is left of your house.
A receipt archive is your proof of ownership for every significant purchase. Scan receipts for furniture, electronics, appliances, tools, and jewellery as you buy them, and you are building exactly what an adjuster or an examiner asks for. Pair it with a room-by-room home inventory, and store both somewhere your house cannot destroy.
ReceiptSync keeps every receipt you scan in the cloud, searchable by merchant, date, or amount. If the house is gone, the documentation is not.