Want your exact line-by-line Form 4684 Section A numbers, the $100 floor, the 10 percent of AGI floor, and the gain-offset diagnostic? Enter your basis, FMV decline, insurance, and AGI in the calculator.
Open the Casualty and Theft Loss Calculator →Under IRC §165(h), an individual's personal casualty or theft loss is deductible only if attributable to a federally declared disaster. The One Big Beautiful Bill Act (P.L. 119-21) made this rule permanent, and for tax years beginning after December 31, 2025, expanded it to also include state-declared disasters. The deductible amount equals the smaller of adjusted basis or FMV decline, minus insurance recovery, minus the $100 per-casualty floor, minus 10 percent of AGI. The result goes on Schedule A line 15 via Form 4684 Section A. Qualified disaster losses use a $500 floor, skip the 10 percent AGI floor, and can be added to the standard deduction without itemizing.
- OBBBA made the declared-disaster rule permanent (no 2025 sunset) and added state-declared disasters as a new eligible category for tax years 2026+.
- Lesser-of test: casualty loss equals the smaller of adjusted basis or FMV decline, minus insurance recovery.
- $100 per-casualty floor: §165(h)(1) reduces each casualty by $100 ($500 for qualified disaster losses).
- 10 percent of AGI floor: §165(h)(2) deducts only the excess of net casualty loss over 10 percent of AGI.
- Personal casualty gains net first: §165(h)(4)(A) routes the offsetting share above the line; surplus loss goes to Schedule A.
- Theft = year of discovery under §165(e); casualty = year of casualty.
- Spouses count as one individual under §165(h)(4)(B); one $100 floor per casualty for joint filers.
- Insurance claim required per §165(h)(4)(E); the insured portion is permanently nondeductible if no claim is filed.
- Qualified disaster loss: statutory list, $500 floor, no AGI floor, can be added to standard deduction.
- Schedule A line 15 is the reporting line for the result from Form 4684 Section A line 18.
What the Casualty and Theft Loss Deduction Is
Internal Revenue Code Section 165(a) allows a deduction for any loss sustained during the taxable year and not compensated by insurance or otherwise. For individuals, §165(c) limits the scope to three categories: trade or business losses, transaction-for-profit losses, and personal-use casualty and theft losses. This guide covers the third category, the personal-use casualty and theft loss deduction.
A casualty is a sudden, unexpected, or unusual event such as a fire, storm, shipwreck, hurricane, tornado, earthquake, or vehicle accident. Theft is the taking and removing of money or property with the intent to deprive the owner, meeting the state-law definition of theft. Both produce a loss measured by reference to the property's adjusted basis and decline in fair market value (see the loss calculation section).
After 2017, §165(h)(5) added a critical gate: an individual's personal casualty or theft loss is deductible only if it is attributable to a federally declared disaster. The OBBBA made that gate permanent and expanded it for tax year 2026 to also include state-declared disasters (see the next section).
Personal-Use vs Business Property
This guide covers personal-use property only - the family home, personal vehicle, household contents, and similar items. Losses on business or income-producing property (Schedule C assets, rental real estate, investment property) follow different rules under Form 4684 Section B, are not subject to the $100 or 10 percent of AGI floors, and generally yield above-the-line deductions. Section B uses different mechanics and is not covered here.
Federally Declared vs State-Declared Disasters
The eligibility gate at §165(h)(5) is the most important rule in this deduction. Without a qualifying disaster, the loss is simply not deductible, no matter how real or how large.
Federally Declared Disasters
Under §165(i)(5)(A), a federally declared disaster is a disaster the President of the United States determines warrants federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. FEMA assigns a DR or EM declaration number and publishes the disaster area and incident period at FEMA.gov/Disaster. The casualty must occur in the declared disaster area and within the incident period; otherwise the loss does not qualify even if the casualty type is the same.
State-Declared Disasters (TY2026+)
OBBBA (P.L. 119-21) amended §165(h)(5)(A) to read "Federally declared disaster (as defined in subsection (i)(5)) or a State declared disaster" - adding state declarations as a new eligible category for tax years beginning after December 31, 2025. New §165(h)(5)(C) defines a state-declared disaster as a natural catastrophe (hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought) or, regardless of cause, any fire, flood, or explosion in any part of the state, that the Governor (or the Mayor of the District of Columbia) and the Treasury Secretary determine causes damage of sufficient severity and magnitude to warrant the application of the deduction rules.
"State" for this purpose includes the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. The state-declared category fills a real gap: many high-damage events in states like California, Florida, Texas, and Louisiana stayed below the federal threshold but caused household losses; those losses become deductible in 2026.
Confirmation From IRS
The IRS confirms both the permanence and the state-declared expansion on its "Casualty loss deduction expanded and made permanent" page (irs.gov/forms-pubs/casualty-loss-deduction-expanded-and-made-permanent). Treasury concurrence for individual state declarations is the procedural step that triggers the deduction; without that concurrence, the state declaration alone is not enough.
How the Loss Is Calculated
Once the eligibility gate is cleared, Section A of Form 4684 walks the loss computation in a specific order.
Step 1: Adjusted Basis (Line 2)
Adjusted basis is generally your original cost in the property plus the cost of capital improvements, minus any prior depreciation and any prior casualty-loss deduction. For inherited property, basis is generally the fair market value on the date of death. For gifted property, basis carries over from the donor with adjustments for gift tax. Establishing basis is the documentation-heavy part of the return; closing statements, improvement receipts, and prior depreciation schedules are the right evidence.
Step 2: FMV Before and After (Lines 5 and 6)
Line 5 is fair market value immediately before the casualty. Line 6 is FMV immediately after. For theft, FMV after equals zero. For property completely destroyed by a casualty, FMV after also equals zero. Acceptable evidence includes independent appraisals, blue-book values for vehicles, contractor estimates, and the IRS-published safe-harbor methods. Line 7 (FMV decline) is line 5 minus line 6.
Step 3: The Lesser-of Test (Line 8)
The casualty loss before insurance equals the smaller of line 2 (basis) or line 7 (FMV decline). The lesser-of test catches both directions: for older property bought long ago, FMV decline often exceeds basis; for newer property, basis usually controls. Failing to apply the lesser-of test is a common error that inflates the deduction and creates audit exposure.
Step 4: Insurance Recovery (Line 3)
Subtract insurance proceeds, FEMA grants, employer-paid relief, and any other amount you have received or have a reasonable prospect of receiving. The "reasonable prospect" rule means a loss subject to a pending insurance claim is not yet sustained; you wait until the claim resolves to claim the loss. If recovery exceeds basis, you have a personal casualty gain rather than a loss (see the next section).
Personal Casualty Gains and Netting
When insurance reimbursement exceeds your adjusted basis in the destroyed property, the excess is a personal casualty gain. §165(h)(3)(A) defines a personal casualty gain as the recognized gain from any involuntary conversion of property described in §165(c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft. These gains interact with personal casualty losses in two important ways.
Loss Up to Gain Goes Above the Line
Under §165(h)(4)(A), the portion of personal casualty losses for the year that does not exceed personal casualty gains is treated as a deduction allowable in computing AGI. In plain language, when you have a $5,000 gain on one casualty and a $10,000 loss on another, the first $5,000 of loss offsets the gain in computing AGI - it is above the line, not on Schedule A. Only the remaining $5,000 of loss is subject to the 10 percent of AGI floor on Schedule A.
Surplus Gain Flips Everything to Capital
Under §165(h)(2)(B), if personal casualty gains exceed personal casualty losses for the year, both gains and losses are treated as gains and losses from sales or exchanges of capital assets - long-term or short-term depending on holding period. The 10 percent of AGI floor does not apply because there is no net casualty loss; instead you have a net capital gain.
Loss Without a Disaster, but With a Gain
§165(h)(5)(B) carves out an exception to the disaster-only rule: if you have personal casualty gains for the year, you can use losses that are not attributable to a federally or state-declared disaster to offset those gains, up to the amount of the gains. This is one of the few cases where a non-disaster personal casualty loss does any tax work.
Section 1033 Postponement
If you have a gain because the insurance recovery exceeded basis and you do not want to recognize it, §1033 allows you to postpone the gain by reinvesting the proceeds in similar or related-in-service-or-use property within the replacement period (generally two years; four years for principal residence in a federally declared disaster area). The basis of the replacement property is reduced by the postponed gain. The election is made on the return for the year you receive the proceeds; see IRS Pub 547 for details.
Theft Losses and the Year of Discovery
Theft losses follow the casualty framework with one timing twist. §165(e) provides that any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers the loss. The discovery year is the deduction year, even if the theft itself occurred earlier.
Two requirements layer on top of timing. First, the act must meet the state-law definition of theft. The IRS looks to the law of the jurisdiction where the property was located; the term covers larceny, robbery, embezzlement, and similar specific intent crimes, but does not cover items merely lost or misplaced. Second, you must show no reasonable prospect of recovery; if there is a pending insurance claim or an active recovery effort with a likelihood of success, the loss is not yet sustained.
The Disaster Gate Still Applies
For personal-use property, the §165(h)(5) declared-disaster requirement applies to theft losses as well. Most ordinary theft (burglary, snatched packages, automobile theft outside a disaster) is no longer deductible, because there is no federal or state declaration tied to the theft event. The deduction is preserved only in narrow cases where the theft occurs within a declared disaster (looting after a hurricane, for example) and falls within the incident period.
Investment Theft and Financial Scams
Theft losses from a transaction entered into for profit follow §165(c)(2), not §165(c)(3), and are not subject to the personal-use declared-disaster requirement. Investment fraud, certain financial scams, and Ponzi-type schemes are reported on Form 4684 Section B (or Section C using the Rev. Proc. 2009-20 safe harbor for Ponzi cases). The 2025 Form 4684 instructions added an explicit "Losses From Financial Scams" subsection in Section B. These rules are outside this guide; see Pub 547 and the Form 4684 Section B instructions.
The Qualified Disaster Loss Exception
A qualified disaster loss is a special, narrower category that gets favorable treatment. The category is defined in the Form 4684 instructions by reference to specific tax legislation, not by any general principle. As of the 2025 Form 4684 instructions, a qualified disaster loss includes a personal-use casualty or theft loss attributable to:
- A major disaster declared by the President in 2016;
- Hurricane Harvey and Tropical Storm Harvey;
- Hurricane Irma;
- Hurricane Maria;
- The California wildfires in 2017 and January 2018;
- A major disaster declared and occurring in 2018 before December 21, 2019, continuing no later than January 19, 2020 (with a carve-out for the January 2018 California wildfires);
- A major disaster declared between January 1, 2020, and September 2, 2025 with an incident period beginning on or after December 28, 2019, and on or before July 4, 2025, ending no later than August 3, 2025 (the latest extension, by OBBBA). The definition explicitly excludes disasters declared only by reason of COVID-19.
Three Benefits
A qualified disaster loss gets three benefits that an ordinary federally declared disaster loss does not. The per-casualty floor is $500 instead of $100. The 10 percent of AGI floor is waived. And the loss can be added to the standard deduction without itemizing, via an "increased standard deduction" mechanism that runs through Schedule A line 16 rather than line 15.
If you have a qualified disaster loss, the practical impact is large. A $20,000 loss that would otherwise be fully absorbed by a 10 percent of AGI floor at $200,000 of AGI becomes a $19,500 deduction (after the $500 floor) you can use even with the standard deduction. Always check the FEMA DR number against the qualified disaster loss list before treating the loss as ordinary.
Reporting on Form 4684 Section A
Form 4684 Section A handles personal-use property and runs from line 1 through line 18. The bottom-of-section figure goes on Schedule A line 15.
| Line | What it captures |
|---|---|
| Line 1 | Description of property, business or personal use, date acquired |
| Line 2 | Cost or other basis of each property (adjusted basis) |
| Line 3 | Insurance or other reimbursement (received or expected) |
| Line 4 | Gain if line 3 exceeds line 2 (personal casualty gain) |
| Line 5 | FMV immediately before the casualty or theft |
| Line 6 | FMV immediately after the casualty or theft |
| Line 7 | Subtract line 6 from line 5 (FMV decline) |
| Line 8 | Enter the smaller of line 2 or line 7 (lesser-of test) |
| Line 9 | Subtract line 3 from line 8 (loss after insurance) |
| Line 10 | Add the line 9 amounts for all properties in the same casualty |
| Line 11 | $100 per-casualty floor ($500 for qualified disaster loss) |
| Line 12 | Subtract line 11 from line 10 (per-casualty loss after floor) |
| Line 13 | Add the line 12 amounts across all casualties for the year |
| Line 14 | Total personal casualty gains for the year (from line 4 amounts) |
| Line 15 | Comparison line for losses vs gains and AGI floor routing |
| Line 16 | Loss treated as above-the-line (offset against casualty gains) |
| Line 17 | 10 percent of AGI floor |
| Line 18 | Net deductible loss to Schedule A line 15 |
FEMA disaster declaration numbers (DR or EM) belong above line 1 when the loss is attributable to a federally declared disaster. The 2025 Form 4684 instructions added a Worksheet 1-1 to handle losses not attributable to a federally declared disaster when you also have personal casualty gains; this is the §165(h)(5)(B) carve-out for using non-disaster losses against gains.
The Prior-Year Election (§165(i))
For a loss attributable to a federally declared disaster, §165(i) lets you elect to claim the loss on the return for the tax year immediately before the disaster year. The election is made on Form 4684 Section D and changes the year in which the deduction is taken; the math itself does not change.
The mechanical effect is to route the deduction to a year you have already filed, generally on an amended return (Form 1040-X), which delivers a refund faster than waiting to file the disaster year. The election must be made within six months after the regular due date for the disaster year (without extensions). For a 2025 disaster, the election deadline is October 15, 2026, for calendar-year individual taxpayers.
Revocation
You can revoke a prior-year election by filing an amended return for the preceding year. The revocation must be filed within 90 days after the election deadline and before any return or amended return for the disaster year. The amended return must refigure the prior-year tax and you must pay any resulting tax with interest.
Other Election Considerations
The prior-year election is not available for state-declared disasters; the cross-reference in §165(i)(1) is to federally declared disasters under §165(i)(5)(A). The election is also not the right move for every taxpayer; running both years' tax with and without the loss is the right way to evaluate the choice. A higher marginal rate in the disaster year, additional credits in the prior year that would phase out with a higher AGI, or simply different deduction stacks can change which year wins.
AMT and Schedule A Interaction
The personal casualty and theft loss deduction is generally allowed for both regular tax and alternative minimum tax without an adjustment; it is one of the few Schedule A items that does not require an AMT modification. For a net qualified disaster loss claimed as an increased standard deduction add-on, the AMT adjustment for the standard deduction that would otherwise apply has been made retroactively inapplicable per the 2025 Form 4684 instructions.
The deduction on Schedule A line 15 sits with other itemized deductions; if your total itemized deductions do not exceed the standard deduction, the casualty loss produces no federal tax benefit. The qualified disaster loss exception is the only way to claim the loss without itemizing. Run the Itemize vs Standard Deduction Calculator to see whether the casualty loss tips you into itemizing.
What OBBBA Changed (and What It Did Not)
The One Big Beautiful Bill Act (P.L. 119-21) made two significant changes to §165(h) and one extension to the qualified disaster loss list.
- Permanent declared-disaster limitation. Without OBBBA, §165(h)(5) would have sunset after 2025 and reverted to broader pre-TCJA rules that allowed ordinary personal casualty losses (subject to the $100 and 10 percent of AGI floors) without a disaster requirement. OBBBA struck the sunset and made the disaster requirement permanent.
- State-declared disaster expansion. OBBBA amended §165(h)(5)(A) to read "Federally declared disaster (as defined in subsection (i)(5)) or a State declared disaster" and added new §165(h)(5)(C) defining state-declared disasters via Governor and Treasury Secretary determination. Effective for tax years beginning after December 31, 2025 (TY2026+).
- Qualified disaster loss extension. OBBBA extended the qualified disaster loss category through major disasters declared between January 1, 2020, and September 2, 2025 (with incident periods that began on or after December 28, 2019, and ended no later than August 3, 2025). This is the latest in a series of extensions; check the Form 4684 instructions for the current list.
What OBBBA did not change: the $100 per-casualty floor, the 10 percent of AGI floor, the lesser-of-basis-or-FMV-decline rule, the insurance claim requirement under §165(h)(4)(E), the year-of-discovery rule for theft losses under §165(e), the §165(h)(4)(B) spouses-as-one-individual rule, and the §165(i) prior-year election framework. These are all unchanged from the pre-OBBBA framework and apply identically to 2025 and 2026.
Want to test how the state-declared disaster expansion changes your 2026 deduction, or to compare a federally declared disaster against a qualified disaster loss for the same facts? Run both paths in the calculator.
Open the Casualty and Theft Loss Calculator →Practitioner Insight (LMN Tax Inc.)
The 2026 state-declared disaster expansion is the most consequential change to this deduction since the TCJA limitation in 2018. We have clients in California, Florida, Texas, and Louisiana whose property losses over the last several years were real and substantial but never made it to a federal declaration. For 2025 those losses remain nondeductible. For 2026 and after, once the state declaration carries Treasury concurrence, the loss is back in play. We are advising clients to document everything now - photographs, contractor estimates, repair invoices, contemporaneous appraisals - so that when the formal declarations come through, the supporting record is ready.
The basis-vs-FMV-decline trap is the single most common error we see on Form 4684 Section A. DIY filers calculate the decline in fair market value (often using a contractor's repair estimate as a proxy) and stop there, forgetting that the deduction is capped at adjusted basis. For older property purchased decades ago and substantially depreciated through use, FMV decline can dwarf basis; for newer property, basis usually controls. Pulling the original purchase records, the chain of improvement receipts, and any prior casualty deduction is the unglamorous work that drives the right number. We will not file Form 4684 without it.
The 10 percent of AGI floor eats most claims, and clients often do not see this coming until we run the calculation. A $10,000 casualty loss in a $120,000 AGI household is a zero deduction. Setting that expectation in the initial call - and surfacing the qualified disaster loss exception if applicable - is critical. Qualified disaster losses are the only path that actually delivers a meaningful deduction for many clients, but the qualifying list is narrow. Check the FEMA DR number against the Form 4684 instructions list before treating any loss as qualified.
The insurance claim requirement under §165(h)(4)(E) is the audit trap that destroys returns. Clients who chose not to file a claim because they did not want their premiums to go up, or because they thought the deductible exceeded the damage, are surprised to learn that the insured portion of the loss is permanently nondeductible. We always ask: was the property insured at the time of the loss? Was a timely claim filed? What did the carrier pay or deny? Without that paper trail, the Form 4684 line 3 figure does not stand up; we will not include the insured portion of the loss in the return.
Real-World Scenarios
When This Framework Does Not Apply
- Business or income-producing property. Schedule C assets, rental real estate, and investment property follow Form 4684 Section B with no $100 or 10 percent of AGI floor. Section B amounts are generally above the line and follow ordinary vs capital character based on the property type. This guide covers Section A only.
- Investment theft and Ponzi schemes. Theft from a transaction entered into for profit goes on Form 4684 Section B (or Section C for Ponzi cases under the Rev. Proc. 2009-20 safe harbor). The declared-disaster requirement does not apply. The 2025 instructions added a "Losses From Financial Scams" category in Section B.
- Progressive damage and wear. Termite damage, dry rot, slow erosion, and similar progressive losses are not casualties; they fail the suddenness requirement under §165(c)(3). The deduction is not available regardless of disaster status.
- Items merely lost or misplaced. A lost wedding ring is not a casualty loss; it is a personal loss outside §165(c)(3). Failing to find the property does not meet the casualty or theft test.
- Decline in market value not tied to a casualty. Drops in stock value, drops in home value from neighborhood change, or routine market depreciation are not casualty losses. The decline must be tied to an identifiable casualty event.
- Pre-2018 events sustained later. The casualty must be sustained (loss event plus closure of any reasonable prospect of recovery) in a tax year after 2017 for the disaster requirement to apply. Pre-2018 events claimed under transition rules use the pre-TCJA framework.
- State-tax treatment. Some states (notably California) do not conform to the federal §165(h)(5) declared-disaster requirement and continue to allow the broader pre-TCJA personal casualty loss deduction on the state return. The federal Form 4684 figure may not match the state return.
Frequently Asked Questions
What to Do Next
Look up the FEMA DR or EM number and incident period at FEMA.gov/Disaster to confirm your loss is within the declared area and period. Run the Casualty and Theft Loss Calculator with Loss Type = Federally declared. If the loss occurred in a year you have already filed, consider the prior-year election on Form 4684 Section D to accelerate the refund.
For tax year 2025 the loss is still not deductible under federal §165(h)(5); for tax year 2026 and after, the state-declared category applies once Treasury concurs. Document the loss now (photos, contractor estimates, appraisals) so the supporting record is in place when the declaration concurrence comes through. Run the calculator with Loss Type = State-declared and Tax Year = 2026.
Run the Itemize vs Standard Deduction Calculator with the line 15 amount added to your Schedule A total. If your itemized deductions still trail the standard deduction, the casualty loss does not help unless it is a qualified disaster loss (which can be added to the standard deduction). Read the Itemized Deductions List guide for the full Schedule A walk.
Net the gains and losses on Form 4684 line 14 and line 15 before applying the 10 percent of AGI floor. Loss up to the amount of gain is above the line; only surplus loss goes to Schedule A. Confirm your AGI & MAGI Calculator figure to size the 10 percent floor; if surplus gains exist, both categories flip to capital treatment.
Related Tools and Guides
- IRC §165 (Cornell LII) — Losses — (c)(3) personal casualty and theft loss limitation; (e) theft loss treated as sustained in year of discovery; (h)(1) $100 per-casualty floor; (h)(2) 10% of AGI floor with personal casualty gain netting; (h)(4)(A) above-the-line treatment for losses up to gains; (h)(4)(B) spouses on joint return treated as one individual; (h)(4)(E) timely insurance claim requirement; (h)(5)(A) declared-disaster limitation (federal and, beginning 2026, state-declared); (h)(5)(B) gain-offset exception; (h)(5)(C) State declared disaster definition; (i)(1) prior-year election; (i)(5)(A) federally declared disaster definition; (k) demolition by government order treated as disaster loss.
- IRS — Casualty Loss Deduction Expanded and Made Permanent — IRS newsroom confirming OBBBA (P.L. 119-21) made the §165(h)(5) declared-disaster limitation permanent and that the scope expands to include state-declared disasters beginning in 2026. Page last reviewed March 9, 2026.
- IRS Instructions for Form 4684 (Casualties and Thefts) — Section A (personal-use property) lines 1-18 covered in this guide; the $100 and 10 percent of AGI floors; the qualified disaster loss list; the timely insurance claim requirement; FEMA disaster declaration numbers; the prior-year election in Section D; financial scams treatment added 2025; safe harbor methods.
- IRS About Form 4684 — Casualties and Thefts — Current revision of the form and Section A line numbering used by this guide and the companion calculator (Sections A, B, C, and D).
- IRS Publication 547 — Casualties, Disasters, and Thefts — Definitions of casualty, theft, and disaster loss; FMV decline rules and safe harbors; insurance recovery treatment; postponement of gain under §1033; figuring a loss; year of loss; the prior-year election; state-declared disaster guidance.
- IRS Schedule A (Form 1040) and Instructions — Line 15 reports the Form 4684 Section A line 18 personal casualty and theft loss; the standard-deduction add-on path for net qualified disaster losses.
- CRS IF12574 — The Nonbusiness Casualty Loss Deduction — Congressional Research Service primer on the §165(h) framework, the TCJA limitation, the qualified disaster loss category, and the OBBBA expansion to state-declared disasters.