Millions of taxpayers face losses each year from severe storms, floods, wildfires, and other disasters. If your home or personal property has been damaged, you may qualify for a casualty loss tax deduction. Recent legislation — the One Big Beautiful Bill Act (OBBBA) — permanently extended limits introduced by the Tax Cuts and Jobs Act (TCJA), while also expanding eligibility in certain cases.
What Losses Are Deductible
From 2018 through 2025, the TCJA restricted deductions for personal casualty losses to those caused by federally declared disasters. This rule applies to your 2025 tax return, due April 15, 2026.
- Before the TCJA, losses from theft, vandalism, accidents, and other incidents could also qualify.
- Starting January 1, 2026, the OBBBA expands eligibility to include state‑declared disasters, giving taxpayers broader coverage.
Special Exception: Casualty Gains
If your insurance payout exceeds the tax basis of the damaged property (creating a casualty gain), you may deduct personal casualty losses not tied to a declared disaster — but only up to the amount of your gain.
Additional Limits on Deductions
Even if your loss qualifies, several restrictions apply:
- Insurance offset: Any insurance reimbursement reduces the deductible amount. If insurance fully covers the loss, no deduction is allowed.
- $100 reduction per event: For uncovered losses, subtract $100 per casualty event.
- 10% AGI floor: You can only deduct losses that exceed 10% of your adjusted gross income (AGI).
Example: If your 2025 AGI is $100,000 and your net casualty loss is $11,000, only $1,000 is deductible.
Standard Deduction vs. Itemizing
To claim a casualty loss, you must itemize deductions. Since the TCJA increased standard deduction amounts — and the OBBBA raised them further — fewer taxpayers benefit from itemizing.
- 2025 standard deduction: $15,750 (single), $23,625 (head of household), $31,500 (married filing jointly).
- 2026 standard deduction: $16,100 (single), $24,150 (head of household), $32,200 (married filing jointly).
If your itemized deductions don’t exceed these thresholds, you may not see a tax benefit even if you qualify.
Need Guidance
The rules for casualty loss deductions are complex. Consult a tax professional to determine whether you qualify and how much you can benefit on your upcoming return