How to Claim Casualty and Theft Losses on Your Tax Return

The rules became more restrictive starting in 2018

People wading through water during a flood
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Property damage is never a good thing. In some cases, though, you can recover part of your money by taking a tax deduction. A tax deduction for casualty, disaster, and theft losses can cover damage due to a fire, accident, or natural disaster. However, you must itemize to claim this casualty loss deduction.

Learn more about how to claim a deduction for casualty, disaster, and theft losses.

Key Takeaways

  • Casualty, disaster, and theft losses must be claimed as itemized deductions except for qualified disaster losses.
  • Due to the Tax Cuts and Jobs Act of 2018, only losses directly related to a federally declared disaster can be claimed.
  • To calculate the deduction, start with the total loss for each casualty or theft event. Subtract any salvage value, any insurance or other reimbursements, and $100. Add up the remaining value of each event for the year, and then subtract 10% of your adjusted gross income (AGI) from that total.
  • Casualty and theft losses are reported and calculated on IRS Form 4684.

Should I Itemize My Tax Deductions?

Standard deductions for the 2021 tax year—the return you'll file in 2022—are $25,100 for married taxpayers filing joint returns, $12,550 for single filers, and $18,800 for those who qualify as head of household. The total of all your itemized deductions would have to exceed the amount applicable to your filing status to make itemizing worthwhile.

If you want to claim a deduction for casualty or theft losses, you have to itemize your deductions. You can't claim the standard deduction for your filing status and then take an itemized deduction for your losses.

If your total deductions are less than the standard deduction, you shouldn't itemize. This means you won't be able to claim the casualty and theft losses deduction. If you have a qualified disaster loss, though, you may be able to deduct it without itemizing.

Changes to the Casualty Loss Deduction in 2018

The casualty and theft loss deduction used to cover a wide range of circumstances. That changed when the Tax Cuts and Jobs Act (TCJA) went into effect. Since tax year 2018, you can only deduct casualty and theft losses if they're directly tied to an event that's been declared a disaster by the U.S. President.

The TCJA could expire at the end of 2025. The full scope of this deduction could be reinstated at that time.

Do Theft Losses Qualify Under the TCJA?

The IRS defines theft as the act of taking or removing property with the intention of depriving the owner of it. The act must also be illegal under state law. But as in the case of a casualty claim, the theft must have occurred due to a presidential disaster area declaration to qualify.

As an example, let's say that a hurricane strikes your hometown, and the president declares that it's a disaster area. Then, a thief gains entrance to your garage through a window that was broken in the storm and steals your car. The theft was related to the disaster covered by the presidential declaration, so you might make the argument that the theft is deductible under TCJA law.

Other losses that do not qualify include:

  • Property such as china, glassware, or furniture that broke under ordinary conditions
  • Progressive property damage (such as to trees, buildings, or clothes,) caused by insects or disease
  • Property that you have mislaid or lost
  • Decline in the market value of stock due to illegal activity or misconduct by officers of the corporation issuing the stock

You may be able to deduct some losses on stocks that become completely worthless. These losses are treated as stocks sold on the last day of the year.

Can I Claim Losses on a Bank Deposit?

Some losses on a bank deposit can be claimed on your taxes. You might be able to claim a casualty loss if your deposit was with a federally insured financial institution such as a bank, savings and loan association, or credit union. The loss must still be due to a federally declared disaster.

If your deposit was not federally insured, it's considered an ordinary loss. Before 2018, you could claim this as a miscellaneous itemized deduction on your tax return. However, the TCJA eliminated miscellaneous itemized deductions from 2018 through 2025.

If Congress lets the TCJA lapse in 2025, you may be able to claim ordinary losses on deposits as an itemized deduction again.

How Do I Calculate the Casualty Loss Deduction?

There are several steps to calculating a casualty or theft loss.

  1. Start with the total loss for each casualty or theft event.
  2. Subtract any salvage value.
  3. Subtract any insurance or other reimbursements.
  4. Subtract $100.
  5. Add up the remaining value of each casualty or theft event for the year.
  6. Subtract 10% of your adjusted gross income (AGI) from that total.

The final amount is the total casualty and theft loss that you can deduct for the year. If you have a qualified disaster loss, you don't need to itemize, and your net loss doesn't need to be more than 10% of your AGI. However, if you claim this type of disaster loss, you would then reduce any other casualty loss by $500 instead of $100.

If your loss was completely covered by insurance, you won't be able to claim any of it on your taxes.

For example, imagine an earthquake causes $15,000 damage to your home. The earthquake is declared a federal disaster. Your insurance company covers $3,000 of the damages. Then, later in the year after the earthquake, your $1,500 laptop is stolen.

You would not be able to claim any loss on the laptop because its theft was unrelated to the earthquake. But you would be able to claim the damages to your home.

To calculate what you can claim on your taxes, you would start by subtracting the amount your insurance company reimbursed you from the total damages, followed by the $100 per-loss exclusion.

$15,000 - $3,000 - $100 = $11,900

Your total casualty and theft loss of $11,900 would then be reduced by 10% of your AGI. If your AGI is $30,000, you would multiply that amount by 10% and subtract that from your total losses.

$11,900 - ($30,000 x 0.10) = $11,900 - $3,000 = $8,900

The total deduction you could claim would be $8,900.

Extra Tax Relief for Disaster Victims

The government typically extends extra tax relief for victims of any particularly devastating disasters that occur throughout the year. These events are known as qualified disasters.

In 2017, for example, victims of hurricanes Harvey, Irma, and Maria received tax leniency under the terms of the Disaster Tax Relief and Airport and Airway Extension Act of 2017. In addition to several other tax breaks, these victims could disregard the 10% of AGI rule. They could claim a deduction for damages without having to itemize.

In 2022, the federal government extended various forms of tax relief to residents impacted by qualified disasters. For example, residents in Colorado affected by wildfires and other conditions can claim disaster-related casualty losses for 2022 or for the previous year. They can also deduct personal property losses that are not covered by insurance.

Check with a tax professional if a disaster has occurred in your area to find out what relief you might qualify for.

How Do I Claim Casualty Losses?

Casualty and theft losses are first reported and calculated on Form 4684. You can then enter the resulting number on Schedule A when you itemize, along with all your other itemized deductions.

Correction - April 8, 2022: This article has been updated to correct a bullet in the Key Takeaways to accurately describe the process for calculating the casualty loss deduction.

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